Treasuries rallied on Friday as the November employment data was mixed. At the time of this writing, futures are suggesting an 80% probability the Federal Reserve will ease at its December 18 meeting. The market has almost priced in three rate cuts during 2025, virtually unchanged from the day before the data was released
The economy generated 227,000 new jobs last month, up from a forecasted gain of 220,000 and October’s was upwardly revised. The unemployment rate edged up to 4.2%, the highest rate in almost three years.
Wages expanded nominally higher than forecasted. The labor participation rate (LPR)—the share of the population that is working or looking for work—fell to 62.5%, the lowest since May. Analysts thought it would rise slightly.
As indicated, the data was mixed. Nominally stronger job growth and wage gains were offset by a rising unemployment rate and falling LPR.
Changing topics, Bloomberg writes the passive-investing juggernaut is picking up speed and “it is stirring up fresh angst about the dangers posed by the index tracking boom across Wall Street.”
With almost a month still to go in 2024, index funds have raked in over $500 billion in fresh cash, while active managers are seeing outflows.
Behemoths Apollo Global Management and Citadel, are blaming index following cash for derailing the crucial role of stock pickers and drivers of market efficiency, “perhaps setting many up for considerable failure as price discovery is all but lacking.”
The market is increasingly top heavy, where the seven largest companies, mostly technology related, keep getting bigger, “a vacuum cleaner of monies that could end disastrously when buyers become exhausted and selling commences.”
Bloomberg writes that US listed passive equity ETFs have had a record $105 billion in flow just last month alone. Moreover the Newswire reports passive products now account for “65% of US equity fund assets, up from 35% about a decade ago.”
Approximately a record $155 billion went into ETFs of “all strips” in November and for the year almost $1 trillion has gone into ETS, surpassing the 2021 high of $903 billion according to Bloomberg.
Wow!
What will happen this week?
The economic calendar is comprised of several top tier inflation indices, unit labor costs and productivity data and import/export prices. Will this data support the prevailing inflation narrative?
Last night the foreign markets were up. London was up 0.49%, Paris up 0.59% and Frankfurt down 0.06%. China was down 0.05%, Japan up 0.18% and Hang Seng up 2.76%.
Futures are nominally lower on mixed geopolitical headlines. China pledged to “embrace a moderately loose economic strategy” next year while the Middle East was further thrown into chaos as Syria’s Assad was overthrown over the weekend. The 10-year is up 3/32 to yield 4.17%.
