VIX Seasonality Begins

August.

This past week’s nonfarm payroll could be a good test of how risk-seeking investors are willing to continue to be. With July’s number missing expectations and May & June getting massive downward revisions, it’s becoming very clear that the labor market is cooling. If the Fed was hanging on to the labor market as its justification for why it should be able to keep monetary conditions restrictive, it’s quickly losing that argument.

And what’s seeming to be a never ending story, the Fed might not even have a good grasp of where things are headed. Coming into the week, the market was pricing in a roughly 65% chance of a rate cut in September. After Powell’s hawkish tone coming out of the Fed meeting presser, the odds dropped to around 35%. On Friday, they climbed back up to 90% following the NFP report.

Either Powell knows something or he doesn’t. Talking about maintaining a restrictive stance less than 24 hours before the BLS indicated a big slowdown in the jobs market suggests that, at best, he doesn’t have a good read on the situation. On the other hand, perhaps he sees a big uptick in inflation coming due to tariffs and wants to hold rates because of that. Or he ends up being wrong on that count too. Either way, the market doesn’t seem to have a lot of confidence that monetary policy is going to align with conditions. Or we’re going to see a repeat of 2022 where the Fed ended up being way behind schedule.