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Franklin Mutual's Dudley on Jobs Report Tomorrow

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Bloomberg Sep 5 21:17 · 21.1k Views

Katrina Dudley, Franklin Mutual Series, Portfolio Manager and Senior Investment Strategist speaks with Alix Steel and Romaine Bostick about tomorrows jobs report.

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Transcript

  • 00:00 Let's just talk about it, get a big jobs report tomorrow.
  • 00:02 I'm not sure how much we need to react to it, but I guess the market is going to react to it.
  • 00:07 What are they positioning for right now?
  • 00:08 Is this going to be a ratification
  • 00:10 of all these rate cuts that have been priced in or something else?
  • 00:13 OK, so you have to 1st, what is big?
  • 00:15 Is it just big because it's, it's such an event given the last time we had some jobs data, there was just such a significant revision.
  • 00:21 I think it was the biggest revision in 15 years.
  • 00:24 If I look at consensus, it's 165.
  • 00:26 If we look at some of them, you know, now casting forecasts, it's actually looking for over 200.
  • 00:31 So I think if you get a print that's in that 165 to 200, the markets going to be fine.
  • 00:36 The bond market however is actually pricing in two cuts, not just 25, it's passing in 50 cuts as we we kind of see it as more than just one.
  • 00:44 And I think that that's where that strong data is going to temper that enthusiasm for such a large rate cut.
  • 00:51 I think that you know, the Fed wants to keep a little dry powder
  • 00:54 is it is the market pricing and forgive me if this is a completely dumb question, but are they pricing in
  • 00:59 rate cuts or are they pricing in a softer economy?
  • 01:02 I think in terms of the rate cuts in and the soft economy, both of them are interlinked.
  • 01:08 If we have a rate cutting environment that is just kind of a little bit of an adjustment that maybe we tighten too much and we just need maybe 2550 to get to rates kind of that Goldilocks just right, that's OK, that supports a soft landing.
  • 01:21 But if people start to fear that we're cutting rates in response to an imminent recession, that's the bare case on the market.
  • 01:27 So I think it really depends on how people interpret these cuts in their
  • 01:32 which then the jobs number is weaker than that 165.
  • 01:35 How much weaker then becomes really bad news.
  • 01:37 I'll allow what we saw in August.
  • 01:39 I think what you, what I would say is a weaker number is something around the 125, you know, something under the 165 consensus, not quite the 1:14 that we had last month.
  • 01:50 People are looking for people to be employed because it's just a really good sign.
  • 01:55 You know, we, we talk about those, some of the traditional economic indicators.
  • 01:58 I, I look at things like a Dollar Tree and, and unfortunately some of those, you know, indicators that we have are not giving indications as we normally would expect because there's other trends going on.
  • 02:09 You know, we've got Walmart competing with Dollar Tree in their backyard.
  • 02:12 So we're also looking at the jobs data to give us a bit of, more of an indicator as to how that lower end consumer is doing.
  • 02:18 But you think the action tomorrow we'll be in the bond market, the FX market or the stock market.
  • 02:23 I think it'll be
  • 02:25 I think the equity market because the equity market is that is really the discounting mechanism.
  • 02:30 And if we look at, you know, we look at valuations, we look at them with the Magnificent 7, we look at them without, it's a little bit on the expensive side.
  • 02:37 So if we start to see that jobs number, you know, coming in very weak, I think we're going to start getting more of those bear market commentaries that says
  • 02:45 we're going for a recession.
  • 02:46 Does that also sort of split up that sort of I guess broadening trade that we we talked about when you've seen kind of the S&P equal weighted index at least if not outperform certainly start to keep pace with the SPX And even of course for a short period of time we saw the Russell and some of those other small and midcap stocks also outperform.
  • 03:02 I think that that's exactly the case because those smaller companies tend to be a little more, you know, exposed to economic trends.
  • 03:08 They don't have that portfolio that the larger companies has.
  • 03:11 So I think your analysis is, is right on point that any type of imminent recession is first going to be felt in those smaller cap companies.
  • 03:19 They usually fall off in the beginning, but then they are really good stocks to own if you can time them right.
  • 03:25 This gets to a question too about whether the market should wait to react because they do have a Fed meeting coming up in
  • 03:31 basically less than two weeks or a Fed decision coming up in two weeks here.
  • 03:34 So no matter what that says on Friday with this jobs report,
  • 03:38 we still need to hear from Jay Powell and what he thinks of it before we, she's laughing at you right now.
  • 03:43 I'm not, I'm not laughing.
  • 03:44 They're
  • 03:45 not going to tell you anything ahead of that meeting.
  • 03:47 I think they go into blackout over the weekend.
  • 03:50 So you've got nothing to do.
  • 03:52 So if you're waiting on that, first of all #2 you do have the CPI print that's going to happen next week.
  • 03:57 So you do want to take
  • 03:58 pay attention to it to make sure that we continue to be on trend.
  • 04:02 So I think that should you wait though until the Fed actually announces what happens if the Fed does nothing?
  • 04:08 I mean, no one seems to be contemplating that the consensus is they're going to cut 25 or 50.
  • 04:13 But what if they say, look, the jobs number is still very supportive.
  • 04:16 Inflation is coming down to trend.
  • 04:18 It's it's slower as it comes down to trend, but it is on trend.
  • 04:21 The GDP number was just revised up slightly.
  • 04:24 Things are OK.
  • 04:25 So maybe we'll just wait again.
  • 04:27 And that's the type of commentary that we think really supports a steady landing.
  • 04:32 But I'm not necessarily sure that investors are prepared for something like that.
  • 04:35 When you take a look at the bull market and bond
  • 04:38 is, is that played out
  • 04:40 no matter kind of what number we get tomorrow,
  • 04:43 It's really tough to see if something's played out completely in terms of a bull market expectation.
  • 04:48 But I do think that we are overly focused on this one number and that does worry me when the market tends to be myopically focused on just the number of jobs that we're going to add particularly.
  • 05:00 Particularly in this environment where we're just seeing such revision to these numbers and I think that the reliability of it is a little more
  • 05:07 tenuous.
  • 05:07 Well, especially if we come in like bang in line with estimates, like what are the chances tomorrow is actually a complete snoozer
  • 05:13 and that we're all here be like, well, that didn't do anything to the market expectations.
  • 05:16 And So what do you do then you're like, well, next week there's a CPI print.
  • 05:20 So we're going to focus on that.
  • 05:21 And does that do so they're the things that we are looking at.