"Sizeable non-farm" fluctuates! Is the US market "making false moves" or "finding an excuse to exit"?

After the unexpectedly strong ADP employment data triggered another round of rate hike speculation, the slightly weak non-farm payroll data dashed market expectations, leading to violent fluctuations in most assets.

This week, there was a huge contradiction between the two employment data released in the United States. The ADP employment report showed that the labor market is still hot, while the non-farm payroll data was significantly lower than expected. Historically, the ADP survey report has always had some inconsistent signals with the official report from the US Department of Labor, so analysts believe that it is not appropriate to predict non-farm payroll based solely on ADP data.

Specifically, the ADP private sector employment report for June, also known as "mini non-farm payroll," showed an increase of 497,000 jobs, more than double the economists' expectations, marking the largest monthly increase since February last year.

However, data released by the US Bureau of Labor Statistics on Friday showed that the US added only 209,000 non-farm jobs in June, lower than the expected 225,000. The May data was also revised down from 339,000 to 306,000. The number of new jobs in June hit the lowest record since December 2020.

Subsequently, the US stock market quickly recovered the lost ground caused by the ADP data, and there was a significant rebound. The Chicago Board Options Exchange Volatility Index (VIX) briefly rose and then fell back during the week. The 2-year US Treasury yield soared 17 basis points to 5.12%, the highest level since 2007, before gradually retreating. The spread between the 2-year and 10-year US Treasury yields also narrowed again.

The US dollar index also experienced significant volatility, falling to a three-week low. The price of gold also experienced large fluctuations during the day, but market expectations for a 25 basis point rate hike by the Federal Reserve in July remain high.

According to a VIP column article from Wall Street News, fundamentally speaking, the ADP employment data has no predictive significance for non-farm payrolls. It is highly misleading to refer to it as "mini non-farm." The ADP data should not be compared with non-farm payrolls. The two sets of data should be analyzed separately based on their own trends. Mixing them up would only lead to confusion.

The article also points out that comparing the ADP data with non-farm payrolls from the end of 2012 to 2016, it is almost like flipping a coin to predict the non-farm situation. The long-term trends of the two are consistent, but it does not mean that their statistical data are consistent. Even within the same system, there can be significant differences in the short-term fluctuations.

Based on actual data, it is true that the ADP survey report has always shown some inconsistent signals compared to the official monthly employment report from the U.S. Department of Labor. The compilers of the ADP survey have always emphasized that their goal is not to match the results of the Department of Labor's survey.

Even the official data has released inconsistent signals: although the U.S. Department of Labor's report for May showed a significant increase in employment, its household survey showed a significant decrease in employment for the same month.

Wall Street analysts unanimously believe that this tells people that trading should never be based on ADP data.

According to Bloomberg, Arthur Hogan, Chief Market Strategist at B. Riley Wealth, said:

The lesson we should learn is to never overreact to a single data point, and it seems that yesterday's market reaction was just like that.

But I also want to point out that after experiencing a hot market in the first half of the year, investors are likely to look for any excuse to take profits. I think that's fine, but don't blame it on any single data point.