295,000 New Jobs Created in February- Rates, Stocks React

Not bad. Not really good but not bad. The unemployment report for February was released this morning and a surprising number of new jobs were created. The headline unemployment rate fell to 5.5%, perhaps catching a few investors off guard but the real news concerned job creation.

According to the295,000 New Jobs in February numbers, there were 295,000 new jobs created, about 50,000 more than expected. The drop in rate was 0.1% more than expected but job creation was the real surprise.

As expected, bonds took a hit at the outset with the 10 year Treasury yield touching 2.25 percent, a high for the year. Mortgage bonds also retreated as the benchmark FNMA 30-Yr 3.0 coupon fell nearly a full point during trading. A -32/32 drop in mortgage bond translates into about a 0.25% increase in mortgage rates, uncommon but not uncommon in light of current markets.

Hourly earnings are still relatively weak, rising a scant 0.1 percent. This after a respectable increase of 0.5 percent in January.  As wages continue to remain weak prices for retail goods could still fall and while that sounds good for the consumer ultimately that also reaches manufacturers. Prices at the wholesale level reduce corporate earnings, keeping wages in check. Ideally, at least according to the Fed, inflation needs to be closer to 2.00 percent at the retail level before any rate increase can be considered. At least that’s the impression the Fed is giving yet after today’s numbers, others are expecting a rate hike after all in June due to the stronger than expected numbers.

At the same time, as the specter of higher rates grows, stocks will also take a hit. During trading the Dow fell -275 points and closed in negative territory after a selloff. The S&P 500 and NASDAQ also suffered. It’s going to be a rather interesting summer as investors decide which direction we’re going, but for now, good news is bad news for stocks and bonds as well.