S&P500 vs. 30 Year Treasury Note

For broad directional moves and at the truly big jumps in the equity market the 30 Year has moved as one would expect, that is in the opposite direction. This makes sense. Typically, as money flows out of the stock market and prices slump money flows into the bond market and bids bond prices up--or bids yields down, same thing. Unfortunately I could not figure out how to plot the 30 Year yield on this graph b/c it would have shown the same direction of movement as the S&P--i.e. as stock prices increase yields increase (b/c bond prices decrease) and vice-versa--and therefore the chart would have been a little easier to read.

However, after intial widening today the 30 Year is coming back in (meaning yields decrease and prices increase--sorry for the lingo) while the S&P continues to rally. I hope the 30 Year is the
one that's right b/c I'm long both it and VXX.

Jobs data and ISM

Nonfarm payrolls today were down 54K vs. 131K last month and vs. 105K that was expected.

The thing is that last month the Bureau of Labor Statistics’ Birth-Death Model (that adjusts for seasonal factors of businesses being created or going bankrupt) added 6K to the number. Stripping that out gives 125K lost in July. This month the Birth Death Model added 115K. Stripping that out we lost 169 jobs. While an adjustment is obviously warranted in some way I am not sure that this number is as positive as the market sees it.

The ISM employment data supports this. Employment dipped below 50 from 50.9 to 48.2, meaning that employment is shrinking as opposed to expanding although this number has hovered around 50 all year. Export orders are also shrinking dipping below 50 to 46.5 (vs. 52 in July.) Here are all the changes:

So only three components actually improved. The biggest improvement was in prices paid. While this might signal that disinflation is not much of an issue it also squeezes profit margins. Imports are up, which I see mostly an artifact not of strong domestic demand but rather of the strong dollar.

The most important numbers on the weaker side in my view are new orders, down strongly from 56.7 to 52.4, the lowest read all year and Business activity, which is also down to the lowest read since January. Backlog of orders, Supplier delivers, and employment as I mentioned above are also discouraging. The 30 Year came in about 4 points on this.

But, as always, it doesn’t pay to fight the tape.