What the Big Jobs Report Means for Stocks, Rates

The CNBC 'Fast Money' panel dissects the latest non-farm payrolls report, and what it means for interest rates and investors.
By Bret Kenwell ,

The October jobs report is all the rage on Friday, after it was revealed that 271,000 jobs were added to the economy last month, vastly outpacing economists' expectations of 180,000 jobs. 

Naturally, the strong jobs report coupled with Federal Reserve Chair Janet Yellen's recent comments about a potential December interest rate hike, has led to investors' increased assumption that the Fed will indeed hike rates this year. 

There's still a lot of data that will be released between now and December 16th - the date of the next Fed meeting - so Rob Sechan, managing director at UBS Private Wealth Management and one of Barron's top 100 financial advisors, knows that it's not a given the Fed will raise rates. 

With that being said, Sechan explained on CNBC's "Fast Money Halftime" show that he is raising cash - roughly 15% of his portfolio - in anticipation of a rate hike and a subsequent selloff. "We will absolutely buy that dip," he said. 

In general, Sechan says the U.S. consumer is doing well, benefiting from lower gas prices. And while some areas within the U.S. - such as certain parts of health care, technology and cyber security - remain attractive, he's looking to Europe and Japan for outsized gains. Investors should avoid interest-rate sensitive assets, as well as emerging markets, he added.

Paul Richards, an independent macro strategist, is much more convinced of a December rate than Sechan. He believes there is a 90% chance the Fed will hike, which could lead to a slight selloff, perhaps up to 3%. Investors should buy the dip for an S&P 500 year-end rally to 2,165. 

The main concern is if the non-farm payrolls reports start to come in too strong, Richards added. What if we started to see a 300,000 jobs result? It could open the door to another rate hike in March, which likely wouldn't sit well with investors.

The Fed may hike in December, and then raise rates again in six months or so. There's no telling what the frequency of the hikes will be, suggested Jim Lebenthal, president of Lebenthal Asset Management. But this is "kiddie stuff," dealing with a 25 basis point raise in rates. 

It's not the 25 basis points that investors are worried about, it's the normalization of interest rates, added Stephen Weiss, founder and managing partner of Short Hills Capital Partners LLC. While Weiss did sell some of his stock positions as a slight pullback may be in the cards, it seems like stocks will move higher despite a rate hike. 

Sarat Sethi, managing director at Douglas C Lane & Associates, said investors should consider buying regional banks and a few of the big banks that will benefit most from higher rates. In order for the banks to do well though, interest rates will need to continue moving higher. In other words, a one-and-done scenario from the Fed will not lead to a sustained rally in financials.

Rather than looking for what will benefit, Michael Block, chief strategist at Rhino Trading Partners, is looking for what will be hurt by a rise in rates. Rising rates will also boost the dollar, which will hurt many industrial and material companies, he explained. 

Also making news is Jim Chanos, who called Alibaba (BABA) - Get Report a short-sell due to its opaque accounting structure. Shares are down 4% in response, while JD.com (JD) - Get Report is up 2% after Chanos is a buyer of the stock as a hedge to the short Alibaba position. 

This call works for Weiss, who is long JD.com - a company he compared to Amazon (AMZN) - Get Report - and because he too does not like Alibaba's accounting metrics. This is a great trade because both parts (long JD and short Alibaba) should do fine on their own. 

First Barron's negative take on Alibaba, now Chanos. While this could set up as a vicious one-two punch, the accounting issues have to be proved true, Lebenthal reasoned, adding that the stock's valuation is actually somewhat attractive.

This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.

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