Stocks closed higher yesterday on increased hopes for a September rate cut.

The markets opened in the green and stayed there for much of the morning.

Yesterday morning's benchmark revisions from the Bureau of Labor Statistics (BLS) was a bit of a shocker. Less so after Tuesday's warnings that it was going to be a doozy. But still pretty shocking nonetheless. The report noted that between April 2023 and March 2024, the number of new jobs that were created/reported was being revised down by 818,000 for that 12-month period. That brings the average monthly jobs gains down from 242,000 per month to 174,000 (which equals a downward revision of 68,000 fewer jobs being created per month).

That's still a solid pace. But it's 28% lower than what was reported. And it's the largest revision since 2009.

The industries with the largest downward revisions were Professional and Business Services (-358,000), Retail Trade (-129,000), and Leisure and Hospitality (-115,000).

There were a few that saw upward revisions, notably Private Education (87,000), Transportation and Warehousing (56,400), and Other Services (21,000).

The markets, however, mostly shrugged it off.

What the markets really wanted to see was the FOMC Minutes from last month's meeting. And they got what they were looking for. It showed that "the vast majority" of participants felt "if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting."

Interestingly, "many" Fed official noted that "reported payroll gains might be overstated." (I guess the biggest surprise there isn't the actual downward revision that we saw in yesterday's BLS report, but that many officials had felt that job gains were overstated and didn't come out and say that.)

Additionally, "a majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goals had decreased," while "some participants noted the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration."

But the key takeaway from the Minutes was that, "with regard to the outlook for inflation, participants judged that recent data had increased their confidence that inflation was moving sustainably toward 2 percent." And that "almost all participants observed that the factors that had contributed to recent disinflation would likely continue to put downward pressure on inflation in coming months."

All in all, the FOMC Minutes, which showed the Fed leaning toward a September cut (assuming subsequent data reports continued to come in as expected), combined with the sharp downward revision to the jobs market (which underscored the increased risks to the labor market), has bolstered the likelihood of a cut next month.

While nothing is a done deal yet, as there's still 3 more inflation reports and 1 more employment report before the next FOMC Announcement on 9/18, the biggest debate will likely pivot to whether it'll be a 25 basis point cut or 50.

I am glad see that rate cuts are on the way.

But yesterday's indifference to the surprising downward revision to the jobs numbers prompts the questions of: Is bad news now considered good (because it increases the likelihood of a rate cut)? Or is bad news still bad, and further weakening in the jobs market will be met with downward price action like the last report?

We shall see.

For now, the economy is still headed for a soft landing. And stocks have continued to respond to that.

See you tomorrow,