Despite being the most widely anticipated labor market report in years, Friday’s jobs data merely showed more of the same.
It confirmed my expectations that the recovery is continuing to chug along slowly, that rates will continue to slowly rise and that the Federal Reserve won’t wind down its easy money before the fall. While the report doesn’t change my economic outlook, it does have six implications for investors:
1.) Prepare portfolios for more volatility. Stocks ended last week on a strong note. But they sank around 5% from May’s closing high to last week’s lows, and both stocks and bonds ended last week close to where they had started the week. Meanwhile, implied volatility recently hit the highest level since February. As investors continue to worry about the end of easy money and remain anxious ahead of key economic reports, markets are likely to remain volatile.
2.) Minimize exposure to Treasuries as rates continue to slowly rise. Last week, Treasury bonds once again came under pressure, with yields rising sharply on Friday. I expect rates to continue to grind higher over the remainder of the year.
3.) Consider underweighting defensive sectors, such as utilities. The utility sector, often seen as a bond proxy, is likely to come under more pressure from rising real interest rates.