Payroll Shock Sets Up a CPI Standoff

Grant Calloway

You, you know, when nonfarm payrolls fell by a seasonally adjusted 23,000 last month, while the unemployment rate edged lower to 4.1%, I think a lot of people on Wall Street just saw what they wanted to see. I mean, I have sat on the floor of the New York Stock Exchange through two full scale market crashes, and this tape right now, it is tighter than a drum. S and P 500 futures are floating around 7,789 point 50, up maybe 0.16 percent this morning. And you have got Tom Lee and JPMorgan out there talking about 8,000 on the S and P like it is a foregone conclusion, even with 2 year Treasury yields sitting right around 4.2%.

Grant Calloway

But, er, let us actually break down what happened with the Federal Reserve expectations here. Heading into last week, we had three hawkish FOMC dissenters from that July meeting, and the swaps market was pricing in roughly a 55% chance of a rate hike in September. Then that minus 23,000 labor contraction hits the tape, and boom, those hike odds tumble straight down to 42%. Traders immediately started celebrating, thinking, okay, the Fed is done, maybe easing is right around the corner. But wait, what if labor is weakening while inflation stays sticky? We have got the July CPI print coming on Wednesday, expected at 3.4%. If that CPI number comes in hot, that whole rate cut narrative evaporates in a heartbeat, and you are staring right into a stagflation landmine.

Grant Calloway

I mean, back on the floor, we used to call these calm before CPI mornings. Traders would stand around the post, sipping terrible coffee, convinced that bad economic news was just a free pass for stock valuations. But, uh, bad news is only good news until it becomes actual earnings destruction. You cannot just ignore the foundation while admiring the paint job on the roof. By the way, if you are trying to cut through all this pre market tape noise without drowning in headlines, check out jellypod.com for automated audio market digests. It is how smart money catches up fast.

Grant Calloway

Now, turning to tech, that relentless momentum is getting a bit of a reality check this morning. Jefferies just downgraded Apple after reports surfaced that their supply chain canceled that ambitious all glass iPhone design. It just goes to show, even the biggest mega caps hit physical and manufacturing limits eventually. On the flip side though, Main Street is throwing a curveball. The NFIB Small Business Optimism Index just surged to 99.8, absolutely blowing past the 97.3 forecast. So while big tech wrestles with supply chains, small business owners are somehow feeling surprisingly resilient.

Grant Calloway

Looking across individual sector movers today, healthcare distributor Cardinal Health is out with its fourth quarter numbers, optical component maker Lumentum is gapping up nicely in early action, and Super Micro Computer is setting the entire AI server narrative ahead of its report after the closing bell tonight. That one is going to move the whole semiconductor complex, mark my words. As for the macro calendar today, keep your eyes on the 8:15 a.m. Eastern ADP Weekly Employment print, followed by 10:00 a.m. Eastern Existing Home Sales, where the market is targeting 4.05 million units.

Grant Calloway

It is going to be a wild session as everyone positions ahead of tomorrow's inflation data. Just remember, Bull Sheet is strictly for informational and educational purposes, not formal investment advice. Keep your eyes on the tape, manage your risk, and I will catch you back here tomorrow morning.