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Stocks finished sharply lower on Friday following a shocking jobs report that missed expectations, accompanied by significant downward revisions for May and June. Upon closer examination of the data, it became apparent that almost no jobs were created in May and June, with only 19,000 in May and 14,000 in June—substantially lower than the previously reported figures of 139,000 and 147,000, respectively. July’s numbers were hardly better, with only 73,000 jobs added.
The revisions released on Friday aligned much more closely with recent data from ADP and Paychex.
Interestingly, the other data released wasn’t notably weak or significantly different from recent months, especially when looking at wage growth and the household survey. The number of employed workers continued its downward trend, while the number of unemployed workers returned to levels last seen in May. So nothing fundamental may have changed in the overall labor market. More likely, the non-farm payroll report was overstating job creation—a reality we were already aware of.
Wage even picked up, rising by 3.9% y/y.
However, the market didn’t take these numbers in stride, perhaps because investors are finally acknowledging that conditions aren’t as rosy as they initially appeared. It’s hard to say for sure. Equally uncertain is whether Powell knew about these employment numbers during Wednesday’s Fed meeting.
The 2-year rate was smoked, tumbling 28 bps on Friday alone as the market frantically shifted its expectations from one rate cut in 2025 to two. The 2-year note now sits at a critical juncture; every time it’s approached support around 3.6%, it has bounced back. However, with a descending triangle formation now evident, a break below this support can’t be ruled out—nor can a potential drop toward 2.8%.
The 10-year yield is currently holding solid support around 4.20%, but a break below this level would likely send rates down toward 3.9%. That area probably marks the lower boundary of the current range. The rationale is straightforward—the Fed Funds futures for 2026 continue to price in rates stabilizing near 3%. Given that the 10-year typically peaks roughly 300 bps above the Fed Funds rate, significant downside beyond 3.9% seems unlikely at this point.
The S&P 500 formed a bearish engulfing candle on its weekly chart, a pattern that historically has served as a strong bearish indicator. In most cases, we’ve seen the index decline the following week, and in several instances, significant declines unfolded over subsequent weeks.
The index also closed below its 20-day moving average for the first time since mid-April. A break below support at 6,200 would likely set up a gap fill toward 6,020.
To this point, the Treasury General Account (TGA) has risen by roughly $220 billion—from about $280 billion to $497 billion as of July 31. It still needs to climb by approximately another $350 billion, meaning we’re not even halfway through the refill process. Additionally, on Friday, the reverse repo facility dropped below $100 billion. Given this, there’s a strong likelihood that the remainder of the TGA refill will drain liquidity directly from reserves held at the Fed.
Based on my estimates, there’s a strong possibility that reserves have already dropped below $3.2 trillion. However, we’ll have to wait until next week’s data release for confirmation, and naturally, these levels will fluctuate throughout the week.
-Mike
Terms By ChatGPT
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Non-farm Payroll Report: A monthly economic report released by the U.S. Bureau of Labor Statistics providing data on employment excluding farm workers, private household employees, and nonprofit organizations.
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ADP: Automatic Data Processing, Inc., a payroll services provider whose employment data is often used as an early indicator of labor market trends.
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Paychex: A payroll and HR solutions provider offering labor market data insights similar to ADP.
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Fed Funds Futures: Financial contracts reflecting market expectations of future U.S. Federal Reserve interest rate decisions.
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Bearish Engulfing Candle: A technical chart pattern indicating a potential reversal from bullish to bearish momentum, characterized by a larger downward candle completely covering the previous upward candle.
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Treasury General Account (TGA): The U.S. government’s primary operational account held at the Federal Reserve, used to manage federal funds and liquidity in the financial system.
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Reverse Repo Facility (RRP): A tool used by the Federal Reserve to manage liquidity in the banking system by borrowing funds overnight from financial institutions, temporarily draining reserves.
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Descending Triangle Formation: A bearish chart pattern characterized by lower highs converging toward a stable support line, signaling potential downward movement.
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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