Last week we were looking to the Friday Employment Numbers to help guide the way for the market. Friday’s numbers came out in spectacular fashion but the market had a less than spectacular reaction. Last month the United States added 295,000 jobs which has made for the best stretch of job creation since the 1990s. These added jobs pushed the Unemployment Rate to 5.5% from 5.7%. There is a distortion in these numbers due to a large amount of people dropping out of the labor market. Make no mistake, however, that the job market is improving. The only thing we didn’t see improve on Friday was the hourly earnings which rose to $24.78 or a measly 0.1% increase from last month.
This better than expected job growth fueled a rally in the dollar. Investors are now worried, again, that the Fed will come back and raise the interest rates early. We have a bit of a cat and mouse game happening between the markets and the Federal Reserve. More jobs being created, rise in consumer spending and extra money from cheap gas signals an improving economy and an increase in inflation which will spur a move by the Fed to raise interest rates early. On the other side of that coin a drop in oil price and strong dollar will push inflation lower which will cause the Fed to delay the interest rate hike as to not hurt the improving economy.
The Federal Reserve will release their minutes on March 18th which we are sure will attract a lot of attention. We don’t figure the Fed will change up their wording too much over one very positive month, especially when they have a meeting in April. We will look more into the Fed Minutes next week.
The VIX got a slight bump on Friday as it increased 8.26% to settle at 15.20%. This may not seem like a big enough move considering the market moved down 1.42% but most of the move was already priced in. Prior to Friday realized volatility was in the gutter and yet the VIX was still in the 13-14s. Had the VIX been in the 11s we would have seen a 15% move on Friday.