The BLS reported Friday, with most markets closed, that the US added nearly 1,000,000 jobs in March, a number well above the supposed consensus of 675,000 jobs. 157,000 jobs were added to previous months via revision. It was what the market has been looking for, hoping for, the arrival – finally! – of the end-of-the-virus-boom.

What is most interesting about this report was the market reaction on a day when most markets were closed. The one market that was open when the report was released was the bond market which promptly did, well, not much. Even a booming jobs report that showed job growth across multiple sectors of the economy, one that showed a rise in the participation rate and a fall in the unemployment rate, didn’t move bonds much at all. Yields Friday ended well below the peak of earlier in the week. Buy the rumor, sell the news.

Bond yields have been rising steadily for 8 months so the direction of rates does indicate that the economic condition is improving. But the rate of change has been fairly subdued and the levels are not what we would expect if a boom were coming. What does a 1.7% 10 year Treasury note yield really mean? One thing I’m pretty sure it doesn’t mean is that the Fed is holding down yields. They’re a big player but if the market decides to take yields higher, higher they will go. The fact that yields are at these low levels isn’t artificial and means, I think, exactly what it appears to mean. The bond market isn’t expecting a boom. In fact, I’d say that right now bond yields reflect growth expectations that are no better – and maybe quite a bit worse – than what prevailed before the virus hit.

The situation is even worse if you look at real yields. Real interest rates are, to me, the sine qua non of economic indicators. I don’t care what every other indicator or report says, real yields kind of have the final say on growth. And right now they are not saying much good. The 10 year TIPS yield is sitting at a negative 66 basis points and about the only thing you need to know about future real growth is that this number is still negative.

One more thing to consider is that the Bloomberg Barclay’s Treasury index just had its worst quarter since 1980, down over 4% in Q1.

It was also the second straight negative quarter, something that is fairly rare. Three down quarters in a row is even more rare, having happened only twice since the early 70s (1979 and 1994). Expecting higher rates and lower bond prices is the the consensus trade right now and has been for months. Which reminds me of another old Wall Street saying I heard a long time ago – the market will ultimately act in whatever way frustrates the maximum number of people. A rally in bonds right now would certainly do the trick.

The employment report was better than expected last week but as I’ve said often, you need some context with these numbers. We are still over 8 million jobs short of where we were prior to COVID. Over 3 million of those lost jobs were in leisure and hospitality, a category that added 280,000 jobs in the latest report. That is good news of course, but it also shows the size of the problem. We’d need a full year of adding jobs at that pace to get back the jobs lost in 2020. And I don’t think anyone has any clue if that will happen. The economy is changing, due to the virus, in permanent ways and there is no guarantee that all those jobs will come back at all. I spoke to a local restaurant owner just last week who told me that he’d never go back to his previous number of employees.

One last report from last week which merits a mention is the auto sales report which showed light vehicle sales all the way back to 17.7 million which is about as high as that number has gotten in the last two cycles. It may not be a boom but it isn’t bad news either.

Next week’s slate of reports is pretty thin but we do get the JOLTS report which could give us some more insight on the labor market. We also get wholesale inventory numbers which might be interesting. Inventories are quite lean right now and we would usually expect more production in the immediate future to rebuild them. But the post-virus period seems likely to see a change in consumption patterns with services possibly surging (do you know anyone who isn’t itching to take a trip or go to a ballgame or concert or at least out to dinner?) while goods purchases fall off. It may be that wholesalers are looking forward to that period and don’t feel a need to rebuild inventories. Just a thought.

Growth played catch up last week but value is still outperforming by a considerable margin YTD. This is looking more and more like a durable shift.