To The Moon

The September jobs report delivered a big surprise.

US employers added just 29,000 jobs, well below expectations, while unemployment edged up to 4.2%. Previous months were also revised lower, leaving July and August payrolls a combined 60,000 below earlier estimates. 

Wage growth also slowed, with average hourly earnings up 3.0% over the past year. 

That quickly changed the rate outlook.

Markets now see a much lower probability of an October Fed hike, although a December increase remains possible. 

Stocks loved it.

The Nasdaq hit a record high, while the S&P 500, Dow and QQQ all finished higher.

But then something interesting happened.

The 10-year Treasury yield initially fell — then reversed sharply and finished around 5.28%, near its highest level in years. 

That creates an unusual market setup.

The short-term rate outlook is becoming less hawkish, but long-term borrowing costs remain extremely high.

And that distinction matters.

If the Fed pauses but the 10-year yield stays around 5% or higher, the market may not get the full benefit investors normally expect from a softer Fed.

High long-term yields can still pressure growth-stock valuations, raise corporate financing costs and increase the cost of capital across the economy.

So I don’t think the story is simply:

Weak jobs = fewer hikes = stocks higher.

The bigger question is why long-term yields remain so elevated despite the weaker labour-market data.

Is the bond market focusing more on inflation, government borrowing and long-term fiscal risk than on the next Fed meeting?

For now, equities are looking through the weak jobs data.

I’m watching the 10-year yield to see whether it can actually break lower.

If it can’t, the market may have to deal with a very different version of the “Fed pause” trade.