Yesterday’s delayed January Nonfarm Payrolls report came in much stronger than expected (130k jobs added vs. 70k forecast). While this shows a resilient economy, it has effectively “wrong-footed” the market by pushing interest rate cut expectations back to July. Treasury yields have ticked up in response to the jobs data, putting pressure on high-growth software and tech stocks that are sensitive to “higher-for-longer” rates. I think that’s the main risk, yields going higher because the economy becomes stronger and commodity prices surge. Cutting rates at this stage would add fuel to the fire.
Rising inflation will coincide with the market top, note that the oil price is moving up, it is up 13% this year. And as the economy grows stronger, liquidity will leave the financial markets and move into the economy. That’s why you see Bitcoin going down, stocks are next. A strong economy increases demand for working capital, that’s why commodity prices go up. Banks respond by lending more into the real economy. That lending pulls liquidity out of financial markets.