The previous piece left a question open: the jobs report came in strong - what would the market do with it.
The session has closed, and there is an answer. It did the exact opposite of what it did the day before - in the same assets, through the same mechanism.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
The Two Sessions, Side by Side
| Thursday, 3 Sep | Friday, 4 Sep | |
|---|---|---|
| Dow Jones | +1.18% | -0.51% |
| S&P 500 | +1.06% | -0.38% |
| Nasdaq | +1.40% | -0.29% |
| Gold | +2.06% | -2.2% |
| Bitcoin | +5.12% | -1.96% |
| Two-year yield | -5 basis points | +3 basis points |
| Ten-year yield | -2 basis points | +1 basis point |
| Probability of a rate rise | 63% to about 50% | about 50% to about 58% |
The right column is the left column with the sign flipped, and there are not two stories here but one: on Thursday a Fed governor said he leant towards holding rates, and on Friday the data said the opposite.
Closing levels: Dow 53,414.25, S&P 500 7,718.60, Nasdaq 26,506.99, gold $4,376.04, bitcoin $79,675.12 after an intraday low of $78,626.
What Actually Happened Here
The August employment report showed 162,000 jobs against a forecast of about 53,000 - nearly three times as many. The unemployment rate held at 4.1%.
A strong employment print is not bad news for the economy. It is bad news for rate pricing, and those are two entirely different things that are easy to confuse.
The argument that the Fed could hold rested on the assumption that the labour market was cooling. This report said it is not, and so the implied probability of a rise went to about 58% - back above even, and above where it sat before the governor spoke.
And Who Gave Back How Much - This Is the Interesting Part
These two days are a rare experiment: the same factor exactly, in two directions, back to back. From that you can see which asset really trades on interest rates and which trades on something else as well.
Compounding the two sessions:
| The asset | Net across two days |
|---|---|
| Gold | -0.26% |
| S&P 500 | +0.68% |
| Dow Jones | +0.66% |
| Nasdaq | +1.09% |
| Bitcoin | +3.06% |
Gold is the only asset that finished below its starting point - it gave back the entire rise and a little more.
And that is entirely logical, even predictable: gold is the purest of the five in interest rate terms. It has no cash flow, no earnings, no customers. Its value is almost wholly a function of the opportunity cost of holding it - so when that cost rises, there is nothing else to support it.
The indices held about two thirds of the gain, because underneath them sit company earnings, and discounting is only part of the picture.
And bitcoin held 3.06% of the 5.12% - that is, more than the indices and less than nothing at all. This is worth noticing, because bitcoin is behaving here as a long-duration asset and not as a safe haven. On a day when gold lost everything, it held more than half. Anyone holding both on the belief that they do the same job got a demonstration this week that they do not.
And the Biggest Move of the Day Had Nothing to Do With Any of It
Lululemon's shares plunged 17.38% - from $121.77 to $100.61, on volume of 37 million shares against roughly three million on an ordinary day.
This is not a response to the jobs report. The company filed a current report with its quarterly results on 3 September, and this is the reaction to it.
(I have not read the filing itself and am not summarising it here. The only figure I am reporting is the price move.)
And on the other side, Broadcom - which fell 2.74% on Thursday after an exceptional report - was nearly unchanged, +0.21% to $357.90. After Thursday's shake-out, Friday added nothing to it.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What I take from this week is not the direction but how clean the mechanism was.
Usually a market moves for several reasons at once and it is hard to separate them. This time there was something close to a controlled experiment: the same variable exactly - rate expectations - moved in both directions within two days, and every asset responded according to how much it really depends on it. Anyone wanting to understand what actually holds their portfolio up got a measurement this week.
And the measurement said something uncomfortable about gold. It is thought of as a safe haven, but across these two days it did not behave like one - it behaved like a bond without a coupon. It rose the most when rates fell, fell the most when they rose, and finished below where it started. A safe haven is supposed to be the thing that holds when others do not. Here the opposite happened.
And what I take about bitcoin is exactly the reverse of the common slogan. "Digital gold" is a convenient metaphor, and this week it did not work: it did not move like gold, it moved like a levered Nasdaq. That is a completely neutral statement - it does not say this is good or bad, only that anyone holding it as a hedge against risk assets is holding two copies of the same bet.
And the last thing, which to me is the most important: within two days, the implied probability of a rate rise went 63% to 50% to 58%. It came back almost to where it started. All of that movement, across every market, on a path that closed a loop.
That does not mean the movement was pointless - each step in it was a reasonable response to the information that arrived at that moment. But it does mean that anyone who tried to read the direction of travel from a single session got two contradictory answers this week. And on 15 and 16 September there will be one answer, and it is not yet written anywhere.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action. Ilan Abramov, the writer, or parties on his behalf may hold positions in the securities mentioned, and those holdings change from time to time.)
