The last 25 hours in the markets have been bonkos, as Regis Philbin would say. It started at 8 pm last night when the S&P futures resumed trading after the Bush 41 remembrance holiday with a sudden downturn. That was just as the wire services were reporting that Huawei's CFO, Meng Wanzhou, had been arrested in Canada at the request of U.S authorities. As trade war concerns heated up more geopolitical concerns arose this morning in the form of OPEC's meeting. Multiple sources are reporting that OPEC has indeed agreed to cut production, but the size and distribution of those cuts won't be known until the meeting among the OPEC+ group (namely Russia) tomorrow. So crude fell along with equities this morning as the spread between the 2-year and 5-year U.S. Treasury notes remains negative and the 2-10 year spread of 12 basis points leaves precious little room for the Fed to maneuver.
The markets seem to have digested this information and have mounted a small afternoon rally. The Nasdaq has made several runs at the flatline, although thus far has not been able to break into positive territory for the day. Oil has stabilized somewhat after the EIA's Weekly Petroleum Status report showed a 7.3 million barrel decline in U.S. commercial inventories of crude oil, surprising pundits who had called for an 11th consecutive weekly increase.
This is what volatility feels like, and the Big Kahuna of market movers is due tomorrow morning at 8:30 with the Bureau of Labor Statistics' release of November's nonfarm payrolls report. What is frightening to me about that particular report is that those who forecast it are about as accurate with their guesses as those who estimate the weekly oil inventory figures. Which is to say, not at all.
I railed in RM columns years ago about the unscientific methodology the BLS uses to produce its non-farm payroll reports. The numbers are based on surveys of a small number of households and establishments (which are supposed to represent employers' payrolls) and are totally unreliable and subject to frequent and significant revision.
If you are a bull, however, a positive reaction to the "jobs number" is about all you can hang your hat on right now, so concerns about methodology will be ignored. TheStreet founder Jim Cramer has often noted that the market's reaction to the payrolls figures sets the tone for the rest of the month's trading, and thus far December has been a dreadful one for stock market bulls.
So, what is Wall Street looking for? It is hard to find a definitive consensus, but Estimize is showing a November payroll growth figure of 191,000 as its mean estimate. That is not surprising because the estimates are in the range of 185,000-205,000 EVERY MONTH!
OK, that's not exactly true, but it certainly seems that way. Estimates are meant to be guesses, but estimates that can lead to the creation or destruction of trillion of dollars in market value should be educated guesses, and the estimates of nonfarm payrolls are not very well educated at all
The figure to watch for will be buried in paragraph 19 of the BLS's preformatted (in 1970s era courier font for ease of reading) press release.
"Over the year, average hourly earnings have increased by XX cents, or X.X percent."
That's the number that matters. That's the number that will determine whether what economists classically have referred to as "wage-push inflation" is actually occurring in the U.S economy.
So, one small number can either stop or continue this wild, holiday-interrupted selloff in the equity markets. I currently have zero exposure to the S&P 500 in my Portfolio Guru LLC clients' portfolios, but if your exposure is higher than that you had better hope for a good average hourly earnings number tomorrow.