(Bloomberg) -- The global bond selloff is proving no wrecking ball for Wall Street, repricing the cost of money without setting off the usual scramble out of risk assets.
Friday supplied the latest test of that resilience. A stronger-than-expected US jobs report delivered another blow to Treasuries as traders stepped up bets that the Federal Reserve will start raising interest rates at the next meeting on Sept. 16. The dollar rose anew and the S&P 500 closed lower, though the index still managed to finish the week in positive territory. The Nasdaq 100 also ended the week higher.
What's remarkable is how little of the disruption has escaped the bond market. Credit premiums remain subdued and downside protection across risky assets is still relatively cheap. Even the strain in market plumbing has been concentrated:
Strong growth and profits have provided much of the insulation. And in an increasingly AI-driven market, the companies leading the investment boom are still earning enough — and investors are still willing enough to finance them — to keep enormous spending plans moving. Through trade shocks and the Iran conflict, meanwhile, holding through bouts of volatility has repeatedly paid off.
"Financial conditions remain easy and credit spreads remain remarkably tight," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. "Companies don't appear to be too fazed by the current level of corporate borrowing costs when their earnings are growing by more than 20% on a year-on-year basis."
So far, the punishment has been selective rather than indiscriminate. Martin points to CCC-rated debt, where spreads have widened even as spreads on BB- and B-rated debt have fallen. Real estate and small caps have lagged during the latest rise in yields, while energy and financial stocks have benefited.
For Dan Suzuki, global investment strategist at iCapital, the bigger danger is acceleration.
"A much sharper rise would likely force investors to reduce risk more aggressively, and that's when you could start to see a more meaningful deterioration in market sentiment."
Meanwhile, just as stronger hiring has revived the prospect of another Fed rate increase, it has also offered a glimpse of some of the forces keeping the economy resilient in the first place.
"If you squint, you might see the outlines of the AI displacement," said Brad Conger, chief investment officer at Hirtle & Co. He pointed to weaker hiring in information and financial services, which he characterized as high-adoption industries, and greater strength in construction, manufacturing and utilities — sectors involved in building, equipping and powering data centers.
Financial activities and information lost a combined 34,000 positions.
With August hiring stronger and the previous two months revised higher, a weakening labor market looks like less of an obstacle to another Fed move. Sarah Hunt, chief market strategist at Alpine Saxon Woods, said doves got less ammunition from the report than they would have from a weaker print. Attention now turns to inflation: another hot reading would strengthen the case for a rate increase.
Marvin Loh, senior macro strategist at State Street, sees an issue that extends beyond one payroll report. The economy is holding up at a time when both governments and companies are competing heavily for capital.
"Fridays jobs report provides another glimpse into an economy that is doing fine even without the structural conditions that will keep the unemployment rate low," said Loh. "Warsh wanted signals from the market and they are telling him he should hike rates, which we continue to believe will happen this year."
With earnings season largely over, Greg Boutle, head of US equity and derivative strategy at BNP Paribas, says macroeconomic data will take on greater importance in the coming weeks.
"It's the right time to be less bullish on equities, but not necessarily outright bearish at this point," he told Bloomberg TV. "We had the payrolls today, maybe leaned a little bit hawkish, but it doesn't really answer the question as to where the Fed's next move is. So, really, it'll be CPI next week and then whether the Fed is or is not going to hike ahead of US midterms."
--With assistance from Davide Barbuscia, Michael McKee and Greg Ritchie.
(Adds detail about stock market performance in second paragraph. A previous version of this story was corrected data for the 10-year yield in the first graphic.)
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