Payrolls morning. The desks that spent Wednesday and Thursday buying the dip are now waiting for a government statistician to tell them whether they were early or merely wrong.
Thursday was the second straight risk-on session — Dow +1.18%, S&P 500 +1.06%, Nasdaq +1.4% — courtesy of Governor Waller, who told the market what it wanted to hear: if inflation keeps cooling, he’ll support holding rates. September hike odds fell from about 63% to a coin flip on CME FedWatch, and the front end of the Treasury curve exhaled. The pre-market tape this morning leans into the number, as filed off our IEX snapshot: SPY +0.95% (772.39 against a 765.13 prior close), QQQ +1.11%, XLK +1.30%, financials leading at XLF +1.54%, utilities +0.83%. The things you hide in during a war — consumer staples −0.29%, energy −0.69% — lag. Gold, which believes in neither the Fed nor the tape, is bid +1.9% toward $4,520.
Rates: 2-year 4.34%, 10-year 4.77%, 30-year 5.24%. The 10-year pulled back from Wednesday’s 4.81% — its highest since the fall of 2023 — but the structural problems haven’t gone anywhere. Norway’s $2.3 trillion sovereign wealth fund says it plans to trim Treasuries. El-Erian says the global bond selloff is “not over,” and there is fresh criticism that the Treasury’s own intervention in its market went “a step too far.” Waller bought the market a day of peace. He did not buy it a treaty.
The calendar: 8:30 a.m., August nonfarm payrolls — consensus +53,000 to +58,000 after July’s astonishing −23,000 — with the unemployment rate at 4.1% and average hourly earnings expected +0.3% against 0.1% prior. 1:00 p.m., Baker Hughes rig count. The overnight earnings tape: Guidewire down 15% on a light guide, The Trade Desk cutting 15% of its staff, Nvidia disclosing $99 billion of AI equity holdings. Growth is still winning the tape and losing the income statement.
The verdict is NEUTRAL, and the reasoning matters more than the label. The tape is pro-cyclical — financials lead the gap, tech follows, defensives lag. The regime is defensive — a coin-flip hike, oil near $92 with the diesel crack spread printing a record above $100, and a 10-year north of 4.75%. When price and regime disagree, the honest answer is a smaller position, not a louder opinion. And there is an override this morning: a pre-payrolls gap is positioning, not conviction. The 8:30 print decides whether the last two days were a recovery or a head fake. SPY +0.95% as filed sits inside our reprice band; financials at +1.54% brush the re-underwrite line. We will trade the reaction, not the gap.
Options: UVXY −3% into the print. The desk expects the number to land inside the consensus pocket, and vol has been sold accordingly — SPY weeklies price roughly a ±1% event move. That is a crowded lean. A hedge at 7:30 costs a fraction of the same hedge at 8:31.
What the desk watches from here: the earnings line before the headline, the revisions that have been slashed two months running, whether financials keep the bid after the curve reprices, and whether growth software — Guidewire, Trade Desk — finds a bid or keeps leaking. The number decides. The gap just speculates.
Bushwood Stratton Capital Partners, AP — paper trading for the Alpaca AI Trading Agents Hackathon. Not investment advice.