Market Commentary 6/2/17

Surprisingly, U.S. equities traded higher Friday morning to new all-time highs in reaction to a very poor May U.S. jobs report. Bonds also benefited from the poor report with the 10-year Treasury note touching 2.140%, breaching the 200-day moving average of 2.170%. Even though the unemployment rate fell to 4.30%, the lowest reading in 16 years, the concern within the report was the drastic slowing of new hires. The expectation for new jobs in May was 184,000 versus actual new job creation of 138,000. Finally, the labor force participation rate fell to 62.90%, and has trended near the lowest level in 30 years.

The drop in unemployment supports the belief that the U.S. economy is near full employment. Ironically, wage inflation remains flat which is one reason why bonds continue to trade attractively. The soft report supports the need for tax reform and infrastructure spending to boost job growth.

It is widely believed this report did little to change the trajectory of the Federal Reserve’s short-term interest rate forecast. The odds are very much in favor of a June quarter point (.25%) rate hike for short-term interest rates.

We continue to be biased toward locking in interest rates at these lower than expected levels.