October Jobs Report: A Data Breakdown with Senior Economist Jose Torres

[00:00:00] Speaker 1: good morning everybody welcome to today's live stream i'm gonna try and control the pit bull behind me who wants to bark at the uh back at the moon this morning um we are going to be talking with senior economist jose torres down in boca raton how are you jose well you know it's been [00:00:22] jose torres: yesterday it was a pretty scary day in the markets andrew uh nasdaq went fell to its lowest point since april uh so it's very frightening for a lot of market participants obviously a lot of losses on behalf of the longs and uh as it pertains to the most popular trade the ai theme that's been driving this bull market since 2023 as well as comprising a greater share of economic growth and driving the acceleration in the expansion that we've been seeing a lot of questions after the blue sweep democrats now are going to control both chambers of congress the senate and the house of representatives our prediction markets did a good job in anticipating that we've been talking about [00:01:11] Speaker 1: that for weeks now let's get into that jose how surprised are you by the blue sweep the extent of [00:01:19] jose torres: it uh really not surprised you know the u.s iran war really bad timing march we had these elections here in november and it's quite clear that the consumers have been significantly pressured by pain at the pump in november and it's quite clear that the u.s the stock market the u.s the u.s the u.s the other u.s the economy rising due to those heavier fuel charges uh sentiment was already has already been weak post covid for much of that time span much of those uh six years or so partially because the fed's been maintaining above target inflation um alongside those heavy interest rates and affordability pressures in the housing market in discretionary uh areas of the economy groceries etc so essentially voters hit the boots and voted against the party in power uh the republicans um when you consider you mentioned us back [00:02:22] Speaker 1: up to the prediction markets there you you said that they were successful in predicting how successful were they it was um relative to the pollsters what was the divergence there yeah well i think that the uh [00:02:37] jose torres: the the the this time around there weren't any sharp discrepancies uh the polls and the prediction markets generally speaking did uh point to the same results there were some key races in in the house of course there's a lot of contests in the house because there's a lot more seats than in the senate uh some of those uh in some of those contests we saw that the prediction markets did better than the polls and then in others we actually saw that the polls uh did a little better than the prediction markets right but those are smaller races with not a lot of visibility when you look at the grand picture of the uh the major developments within the election you know the prediction markets i think did even better than the polls when you consider that uh on election day you saw the odds of the senate uh rose to around 77 to 80 percent for the democrats uh that was in the morning and as the day progressed of course those odds got higher um but in the days leading up to the election you know we were in the 70 percent 70 percent 70s percent range 72 75 percent of a blue sweep uh and of course that is what happened uh the latino vote the male latino vote that president trump did well with uh against vice president harris back in 2024 that vote essentially disappeared um immigration restriction not very popular amongst that cohort of course um amongst some of the other pressures that we spoke about throughout the day you know it's not [00:04:15] Speaker 1: a bad one day return is it um if if you if you manage to pick up uh like for example you spend 77 cents overnight you're making you know you're making 23 cents when because you uh felt that the the the democrats would win the senate that's a pretty swift return i'm not quite sure what the payout day is because i guess everything's not doesn't get counted the counting's not completed yet [00:04:40] jose torres: in certain states like alaska right uh yeah but well uh it's i mean at this point uh i i didn't check the um [00:04:50] Speaker 1: the fine print um yeah the results the result cannot change no the result cannot change no considering [00:04:59] jose torres: um the how how significant uh the beating was for the gop i mean might as well call it that that's what it was um you know there's um really no room here for for the republicans to to post an upset with you know half a percent of votes uncounted or something like that uh some some races were incredibly close in areas you wouldn't expect uh for example in the senate the uh democrats picked up kansas right that's been a stronghold of the republican party for ages um farming in kansas jose a lot of farming in kansas uh you know be hit by those heavier fuel charges charges hit by the tariffs hit by beef imports and then also in texas so that was the big market mover uh the new governor of texas texas selected a republican oh sorry a democrat governor for the first time i want to say since 1960 i could be off on that number um and the governor uh hinojoza essentially has said that she's looking for a moratorium on data centers and texas holds about anywhere between a quarter to a third of new data center construction plans over the next three to five years so that's been part of the sell-off and tech stocks and ai this idea that the democratic governments across the country are going to start adopting this posture of anti-ai uh tighten regulations heighten oversight uh and demand more out of these firms of course if that is the case and that does occur then less development less construction would mean that you run into the risk of an oversupply of semiconductors and that's why some names we're seeing for example like the memory chip makers are getting absolutely clobbered i think mu micron technology one of the leaders this year uh down roughly half from its all-time highs uh the cues i'm going to share my screen here in the trader workstation and um just so you know uh andrew wilkinson is the voice behind the um trader workstation whenever you're um engaging with it it's andrew wilkinson telling you order filled a connection established connection lost uh order partially filled that is andrew's voice and you know we're uh glad to have him here with us as always and here you see folks the nasdaq 100 index huge fall over six percent in a day folks uh that was the worst since 2020 for the other indices the s p the dow and the russell the that was the worst one day decline since the liberation day event back in uh last year of 2025 but you know think about we were at an all-time high folks here on october 6th and think about how fast we fell down here to um april levels essentially undid undoing uh this this huge rally that we got off of this um bottom that we got this was around that s p 500 6 300 this bottom and then we had this huge enormous run uh from april to june um and you know really taking away all of that rally that that being said you know uh since june we we made an all-time high in early october but it wasn't uh a decisive one it wasn't a significant thrust higher uh so we've been kind of flat since june kind of meandering but now here the investors saying they don't want tech stocks until the democrats um show some love to the to the tech sector set to the tech sector and ai uh today the market's doing a little better president trump came out and spoke about how important ai growth is and how we need to continue our expansion um calling those that don't want to uh persist with the projects calling them essentially um something along the lines of um of idiots or stupid or something like that i don't remember exactly but something insulting essentially telling the democrats that they need to um turn around on the ai story it'll be interesting to see the magnificent seven names uh you know historically they have been they've done well courting the democrats courting democratic leaders um getting their way uh so we'll see if um if they're they're they're successful this time around uh non-farm payrolls today as well so expecting around 50 000. we're um we're getting off topic here we can [00:09:42] Speaker 1: come back to the markets later on we've got the non-farm payroll and you know lo and behold it could be a strong number just like you know a couple of days too late for for the for the elections what what's [00:09:54] jose torres: the market uh telling us uh let me um open up my um prediction market here what are the prediction markets is telling us i should say yes yesterday we're expecting a number around 53 000 as of this number we were right around the same so we're going to navigate our uh prediction market here all right [00:10:31] Speaker 1: and for the audience please do use the chat panel to ask questions uh throughout today's session you can reach us on through through linkedin uh and uh x live stream um i i you know i don't i just i just don't know how important today's number is jose um in in the big picture i mean the the to an ex to an extent you could say the market was priced to perfection beforehand with the with the the nasdaq chart of the composite you just showed us however um you know the market is supposed to be a discounting mechanism and i think there was you know even october the sixth at that high point um i i i think it was still fairly well flagged that the democrats would take control at least of the house so it wasn't as if um while that you know while the extent of the uh the the the the turnaround is huge um it was to be expected so i think right now would you would you agree with me when i say that the narrative is driving the market is driving the market is driving the narrative let's see i think that the [00:11:49] jose torres: narrative is driving the market at this juncture uh the new texas governor hino josa very very vocal andrew moratorium on data centers we need to ban these things they're taking up our water they're taking up our electricity we need to protect texans we're starting to see a somewhat of a populist people movement against artificial intelligence um bolstered by the democratic party with a lot of momentum um after the midterm election wins um and you know those for example elon musk's companies the public listed as uh spacex and tesla you know got crushed after that announcement uh as well as the other ai name so the rhetoric does seem to be intensifying after the victory and i think that's another thing that really has markets um you know uh at odds in fact post midterms we got a rally you know and then all of a sudden it was a bloodbath so you know that that was um we've been getting more bullish here on non-farm payrolls as the day has progressed the 50 50 line was at around 50 yesterday right now it's at 80 000. so that's uh interesting to see that kind of move and the number is out folks [00:13:10] Speaker 1: okay so let's let me go to my uh my release is here the employment situation let's have a look [00:13:22] jose torres: situation table huge holy mackerel 165 000 uh big beat huge beat much higher than the 65 000 expected much higher than the um i think it was 30 000 or something from the month before um so so big gain here let's see what the markets how how the markets are reacting [00:13:52] Speaker 1: looks like 55 000 which was which is well within the health care and social assistance um sector um more than twice the pace last month and and the prior month that that's accounting for almost the entirety of what economists expected uh 25 000 from transportation and warehousing um so that's about 80 000 of it and then durable goods manufacturing was 19 that's that's highest for for a couple of months there um government just six and three month average total non-farm um three month average is 137 000 that doesn't seem to be true but uh weekly hours states stayed static 34.4 hours the um if if you're on an hourly wage the hourly wage has gone up by about 14 cents to 38 dollars uh with average weekly weekly weekly earnings at about thirteen hundred and seven dollars twenty cents so a a a a strong report i'm not sure what the net revisions were jose [00:15:15] jose torres: yeah i'm um combing through it now just uh presenting a chart here of the um of the of the makeup uh decent report really concentrated here in professional business services this has been an ai heavy sector uh so 70 000 here like you said private education and health services non-cyclical but then some buoyancy here in the transportation and warehousing as well as the manufacturing sector uh market not liking this well initially not liking it i should uh speak again we're at 73 80 on spx uh went down to test the 73 55 area right back up to 73 75 uh yields up on the on the move yields have been down significantly in the past few weeks um driven by the ai slow down fears uh so big uh jump in interest rates here still looking like we're gonna have a green day in the market the queues finished yesterday at 647.05 uh they're looking to open at 658.32 uh so dollar strengthening so this is a very very strong report and we're going to go to chief strategist sosnick while we look at some of the details under under the hood and we'll be back with you shortly [00:16:51] Speaker 3: what exactly are prediction markets prediction markets are a way for ordinary investors to express their views on market related events some of which have very important consequences for one's investing for example we all know that elections have ramifications for markets with midterm elections approaching it will be very easy for investors to decide who they think has the better chance of taking the lead in the house of representatives the senate or in any range of specific congressional or gubernatorial elections prediction markets make that very simple you can speculate on these races or you can effectively use them as a hedge on your investment positions but doing so in a much more targeted way than one was able to do before the advent of these products this to me is the beauty of prediction markets you can express a view on something that is market related or investment related but that has always been historically difficult to factor into prices in a direct manner walk us through the mechanics how does one trade in terms of the mechanics it's really not that difficult you buy the yes if you think that the outcome of the contract will occur you buy the no if you think it won't and you also exit your contract by buying the opposite contract so if you're longer yes you buy a no if you're long and no you buy a yes then how does one calculate profit and loss prediction markets are quite straightforward they trade at a value between zero and one you know and these are dollar contracts so you can speculate a little more in terms of the number of contracts because the dollar value is low and in terms of the their percentage return that's based on what you paid and the difference so the leverage can be quite powerful because if i pay 40 cents for a given contract and it resolves at one i made 60 cents on my 40 cent investment that's 150 return and what are some risk considerations one thing that we believe mitigates the risk is that these are financial contracts not bets these are financial contracts by a reputable financial firm with important financial regulation behind them we believe that these prediction markets are a valuable tool for investors to speculate on or hedge risks that otherwise have not been easy to incorporate in one's portfolio and that's why we feel very strongly about these products as investment tools and risk management tools rather than just purely [00:19:56] jose torres: pretty broad based um push in the report isn't it jose yes uh revisions were very positive uh we saw the august was up 53 000 from 133 to 186 and september was up 31 000 from 29 000 to 60 000 so [00:20:20] Speaker 1: uh definitely great news there and the um today's 165 000 compares to a 12-month average of 48 000 so it's a pretty substantial deviation from what we've seen on average uh for each of the past uh 12 months and that's why that three-month average is now so high because of the um the substantial revisions as well in the concentrated in the nearby months um what was the market reaction jose the market reaction [00:20:54] jose torres: i'm going to go back to our screens here uh market reaction is mixed still um markets seeing a better economy uh at least uh in in last month of october uh but the higher interest rates you know that is uh working against the market right now uh let's see here it's going to zoom up a little bit so we see the initial reaction we started off with a red candle tried to recover still in the middle still not not decisive here uh we're at we were at 73.80 on the cash s p uh now right prior to the report now we're at 73.66 so you know more red candles um well i shouldn't say more but um the red candles are more pronounced here than the green so some selling pressure right at the open uh other things in the report folks wages a lot faster than expected 0.4 percent month over month ahead of the 0.3 percent uh expectation and the prior month uh september which was 0.3 as well annualized basis we saw a slowdown from 3.2 percent year over year to 3.1 percent that was however above the 2.9 percent expected uh if we look at uh these are the last three months of job growth 186 60 and 165 very healthy three month moving average is something that andrews has liked 69 79 137 so clear acceleration driven by the private sector 65 83 126. um let's look at the household survey here this unemployment rate another thing that's working against interest rates here unemployment rate ticked lower from 4.2 percent to 4.1 uh labor force expanded 421 000 people that's a welcome development rate participation up to 61.9 still well below 63.5 from the pre-pandemic level level in february of 2020. uh overall strong report labor is fine um we saw yesterday challenger job cuts lowest october since 2023 hiring plans very robust so i guess with the blue sweep and the recent employment numbers from several different sources not just this morning we can all uh or most of us at least cannot worry shouldn't worry too much about ai displacing our work or and to a lesser extent a lesser extent even we shouldn't be too concerned about our abilities to find work if things with your current employer aren't going that well that's really what these numbers are saying businesses have not adopted ai to the level where they can start having significant payroll declines um they still need a lot of people we we got job openings on tuesday big beat andrew adp on wednesday big beat challenger job cuts beat to the downside that's positive unemployment claims to the downside positive and then today non-farm payrolls to the upside positive so this is not a labor market where you know folks should be worried in fact unemployment rate very subdued what folks are certainly concerned about are prices and inflation um you know and we continue to get these really weak sentiment numbers and confidence figures uh that are amongst the worst we've seen in all of history since at least the 1950s or so on university of michigan and i want to say 1980s on conference board but i could be wrong [00:24:56] Speaker 1: construction continues to limp along uh minus 3 000 net job change in october after 16 and a 17 000 addition in the prior two months um sensitive to interest rates right sensitive to interest rates [00:25:15] jose torres: certainly uh the home builders have really um been feeling it housing has been ice cold the manufacturing of data centers has helped to bolster construction in recent months um so the employment situation in that particular sector hasn't been as bad as you'd expect considering that it's so highly influenced by the residential real estate sector the ai build out the some overlap with the manufacturing buoyancy has certainly helped construction stay afloat um finance got a nice gain too that's a big uh ai heavy sector ai prone sector down 1000 so uh mixed overall but from a sector perspective but at the headline level very strong especially with this professional business services here at 70 000 uh really um really strong from a cyclical [00:26:17] Speaker 1: sector what what's it's going to be interesting to see how today pans out in the equity markets isn't it uh in response well not not just response to today's report i think today's report is just going to get consumed the bigger picture the bigger fish to fry as it were is really what's uh you know what will the sell-off in ai stocks continue uh and and will we begin to see some um uh you know put this in different two different buckets ai related and non-ai related there's there's no rational reason unless you're sure the stock market is getting a revaluation but does that mean that all stocks need to go down [00:27:01] jose torres: unfortunately the market has become such a driver of consumer spending and if we can't find our footing soon ladies and gentlemen we're going to be facing slowdown risk similar to how in 2018 we had that 20 drawdown uh in the final months of that year that was also a midterm year that was also the year when fed chair powell got started so that was a year where we saw uh we ended the year quite negatively and 2019 became a year where economic data started to slow significantly namely manufacturing um job growth retail sales really started to slow meaningfully and president trump back then was blaming the federal reserve for being too tight um if the market doesn't find its footing we have a k-shaped economy where the more affluent households are driving a greater share of transaction momentum they are guided by their portfolio values if their portfolio values are declining then they're not spending as much and the impact across the economy could be significant could even if coinciding with data center moratoriums which has driven gdp expansion those two things in combination could put us in a recession next year 2027. um against that backdrop andrew trump the trump put the level at which president trump would come in and support the market has been lowered why because president trump in the past few days has been essentially signaling that the reason why the market is declining is because the democrats won um so he doesn't have an electoral incentive to want to bolster the market so so that's a that's a real risk for investors i think we recover in the near term and we have a good finish to the year i think this is just going to be a hiccup folks the ai numbers were in the nosebleeds we had to find a deceleration at some point um if this leads to more a more sustainable expansion and numbers never falling having to fall off of a cliff because we made it so high then that wouldn't be a terrible thing for equities right um this democrat driven slowdown could be positive in the sense that it's gradual and we spread out the expansion over maybe two to four years extra rather than putting all that activity into maybe a two or three year um time span you know instead of a if you go four to six you know you can spread it out more evenly uh and you're less susceptible to a crash uh so against that backdrop i you know i i think we do recover i think earnings can still grow double digits some of these chip makers now uh they've fallen so much that investors are essentially expecting their earnings to get cut in half or 75 percent so those valuations are very attractive if we ever have a lift and sentiment a recovery in animal spirits you know those things can you know go off to the races but if recession risk becomes more real uh then the trade is going to be in treasuries and we will and earnings you know have peaked and we'll we'll have a contraction in earnings that'll warrant lower stock prices we haven't had a down year since 2022 so maybe 2027 is um i don't think this year will be a down year given that the s p is up um roughly seven percent i mean it could still be a down year we're right at the 200 day moving average folks 73 33 on the s p 500 so we'll see if that acts as support um but 2027 could very well be a down year if the wealth effect gets drained by an ai slowdown [00:31:38] Speaker 1: fascinating stuff i tend to agree uh wholeheartedly with that i think i think the risk obviously right now is to the downside so if you know for anybody looking to buy i think maybe be patient would be would be the way i'd put it and certainly don't jump in with with two feet at this point markets do love to test the downside they like to see exhaustion before they they rebound would [00:32:04] jose torres: you agree jose oh absolutely absolutely um this has been a um you know uh folks have really been invested in this theme and sometimes you need a shakeout you couldn't really find buyers um at those highs in early october to keep moving higher so you know now we're having a shakeout um could this be a springboard to a significant year in rally at this point the odds have the you know meaningfully softened um we're below we're um we can go up 400 on the s p 500 and still not be at record highs you know just considering how huge that green candle that red candle was that broke for the 50 day 100 day and 200 day moving averages um but if things if sentiment somehow is restored uh and we have some favorable comments from some demo from some democrat winners in the midterm elections you know maybe offering a more balanced approach on ai then i can still see a year in rally seasonals are very positive here november is the best month on the calendar from a historical perspective you know i can't believe i'm saying that i'm looking at that red candle in november uh but uh yeah absolutely andrew you're you're definitely right you know markets test you to the upside to the downside you know if you're long um you know sometimes you got to take pain lower and if you're short sometimes you you know you gotta you know get um get uh get squeezed so that being said there's a lot of short selling going on vix is very very high so you know folks that maybe would want to get in at a lower price you can sell some of those out of the money puts short duration 70 200 on the spx maybe those premiums are very juicy because when the vix goes up volatility protection instruments become more valuable so if you sell those you know you could uh earn a hefty premium on a relative basis um so that [00:34:04] Speaker 1: that's something else that folks can do you know the s p futures have been ticking up while you've been talking now jose they're up 10 points higher than there were they were stuck at around 73 67 there now now they're they're they're up uh 50 points rather than the the 40 points um all right i think this is that an absolute one thing i would add jose is is you know mind mind the rebound on the daily chart you had there the the the extent of the rebound on repeated occasions even if it didn't last was very very strong it's like people just looked over the shoulder and said oh yeah i'm just just looking back to august there and then the one in june as well you know the significant sell-offs um people worried about things and then that the extent that the rebound was really sharp yeah especially you know [00:34:57] jose torres: once you start testing these moving averages you know those have been areas where where where folks have come back uh the sharpest rally came when the s p went down to 6300 i couldn't believe it that uh that the ai story started gaining steam while the u.s iran war was going on while oil was shooting up above 100 and interest rates were soaring i couldn't believe that we got this rally here um april [00:35:26] Speaker 1: through may um a lot of that wasn't a lot of that to do with the fact that the trump kept telling everybody that the war would be over there were there were uh peace talks going on and this wasn't going to last and they were they were being annihilated they've got no no soldiers left no no weapons left and all the rest of it so there was a very positive on the toes this whole trump thing [00:35:45] jose torres: you talked about earlier yeah no and it was every single day and i couldn't believe it i mean every time the mark i mean you you i mean it was i mean it was green i mean just look at we're just going to zoom in in the mark march to april to may rally i mean almost every candle is green uh daily candles folks barely any red days when you got a red day it was barely nothing it was nothing really uh and just straight up and just everyone just kept believing president trump that the war would be over and that fuel charges would be lower um and it's been eight months and you know here we go here we are um you know the war ongoing and the market now testing those games because the market thought for uh and and you and usually when the market has gains it's so difficult to take it away right markets go up over time stocks have done great over his during uh historical periods that being said we we haven't for a long time since um the great financial crisis we haven't had a period where stocks are flat for five years 10 years 15 years um dot com great financial crisis those are you know times where um you could buy the index and wait 10 years and you know gone nowhere we haven't had that um maybe we're it were if this the if the ai theme slows down and we don't have another theme to grab on to to support higher earnings and higher stock prices prices following ai you know we could be in a situation where we have subpar returns going forward um that being said i i thought that back in 2022 and then ai came about so it'll be interesting to see what what you know if this theme dies down what's the next theme that drives wall street you know higher sideways or lower i mean there there's always a theme you've been in the business for a long time and you're right there there's always a story there's always a narrative to trade off of always always always [00:38:00] Speaker 1: always always and i was just going to ask you jose as we wrap up here um looking forward to the end of the year which what what what what is something that is of uh you know great interest to you on the prediction markets that the interactive brokers offers uh what is the market saying about year-end s p or [00:38:21] jose torres: or nasdaq prices for example yeah i think um the fed decision is is one of my uh top um top things that i'm looking at because i don't think that the fed is going to want to hike in this kind of environment so i've been looking at that um [00:38:46] Speaker 1: well nothing's got nothing's really got any better so i'm not sure why the fed wouldn't want to i mean you'd need a i i don't know sometimes the fed can can rarely as it said if we if we hate them we we run the risk of accelerating our sell-off in stocks but they often more more than more often than that they talk about elevated stocks which are which are way woefully optimistic so so policy has to be set regardless of of what's happening in the stock market [00:39:27] jose torres: yeah um well yeah you know and and i disagree a little bit there because i do think that the market has become such an integral part of american consumer spending that if the market isn't doing well then we face recession risk and we face the feds labor side of its mandate we face a vulnerability there um but you know to that end uh with yesterday's sell-off the um the hike odds went down this for december december went down to 65 but they're back up to 73 uh they were at 81 a few days ago so some some some vault you know modestly um shifting trading here we're having here in december the december fed decision i think the pause is cheap um at 26 cents i think that um you know that that's a good payout if if fed cheer wars decides to stand back not hike in light of a financial market volatility and the [00:40:29] Speaker 1: potential slowdown ahead uh interesting yesterday the bank of england raised rates for the first time in i think nearly three years um and they they they said we they clearly didn't want to do it but they had to do it because of the level of inflation and they warned that that this might not be the last unless the conflict in the middle east gets resolved so it was it was a real clear-cut path from elevated energy prices in the united kingdom to what's going on in terran [00:41:04] jose torres: absolutely and also in europe and in the uk big reliance on energy imports so um that inflation you know much more spread out in the the ecb has been much more aggressive than both the boe and the fed you know they've hiked twice already um christine lagarde is stepping down uh in february a few months before her term is over um she's had enough of the job um so yeah yeah i think if this slowdown if this volatility continues i don't i think everyone's going to start um remaining steady uh and then tilting towards cuts because this you know this ai slowdown if markets don't recover in two to three months is going to start showing up in the data uh and even if we have above target inflation you know central banks have turned to prosperity defenders um rather than you know inflation hawks so i think they're going to defend prosperity keep the cycle alive folks that's been the that's been the focus andrew from central banks keep the cycle alive [00:42:11] Speaker 1: very good okay jose torres senior economist with interactive brokers thank you for joining us today and we'll be back next week with consumer prices how much does that report matter [00:42:23] jose torres: uh i think it's not gonna matter that much uh it's gonna come in hot we've had some retreat on oil prices i don't think um i think folks are more worried about the real-time indicator which is west texas intermediate it's at 90 192 can it get to 80 can it get to 75 if you get there next year's conversation turns to cuts irrespective of whether we're in recession or not so let's get another 10 or 15 dollars down on oil if we're a bull on uh fixed income or in stocks that'll benefit us greatly [00:42:57] Speaker 1: thanks jose i'll speak to you next week