VideoBenjamin CowenBenjamin Cowen

Payrolls Come in Weak, Unemployment Ticks Higher

The labor report showed weak payroll growth and a modest rise in unemployment, which Cowen links largely to more people entering the labor force and difficulty finding work rather than a surge in layoffs. He also points to market divergences, including small-cap weakness alongside a near-record S&P 500, and widening CCC credit spreads. On policy, he argues tighter monetary conditions do not rule out crypto bull markets and speculates that the Fed could resume quantitative tightening, while noting the market's rate outlook for the Fed and Bank of Japan.

Labor MarketInterest RatesMarket Breadth

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Key Takeaways

The labor report showed weak hiring—29,000 payroll gains versus a 90,000 consensus—while unemployment edged up from 4.14% to 4.18%. Cowen said increased labor-force entry, from 702,000 to about 818,000, was a key reason unemployment could rise even as job losses declined, making the increase potentially benign but too early to assess.

Cowen described labor-market weakness primarily as a job-finding problem: hiring is low, but layoffs and discharges remain below their pre-pandemic level. Younger workers face particularly high unemployment—14.5% among 16-to-19-year-olds and around 8% among 20-to-24-year-olds—even while major stock indexes are near highs.

Cowen said a recessionary deterioration would be clearer if payroll growth turned negative, layoffs rose, or job quits fell sharply; he noted that quits have been relatively flat and the seven-month layoff average is 1.74. He also flagged the risk that rising rates could pressure payroll growth, which had come close to zero before rebounding.

Credit and rate-volatility measures are showing strain without a corresponding equity decline: CCC spreads are around 12% and rising, and the MOVE Index has spiked, while stocks remain near highs. Cowen cautioned that these relationships have not been consistent historically and that CCC spreads have previously reached similar levels without a major market reaction.

MARKETS

Credit Spreads — Cowen says credit spreads are widening as yields rise. CCC spreads are around 12% and rising relatively rapidly, while investment-grade spreads remain comparatively low. CCC spreads have reached similar levels before without a major market reaction, though stock-market declines have often coincided with rising spreads; stocks are currently near all-time highs.

“Now, one of the things that has happened because of rising yields is that credit spreads have started to widen. Okay?…”—

Small-Cap Divergence — Cowen says the Russell 2000 has fallen about 10%, while the S&P remains near all-time highs, supported by mega-cap leaders. He argues the Russell is more rate-sensitive, leaving small caps more exposed to rising rates while larger companies can withstand the pressure in the short term. The divergence could resolve with a Russell rebound lifting the S&P or with the S&P declining to follow the Russell.

“The reason why I think something has to give the Russell the small caps, right? If you look at the Russell 2000, the Russell has been dropping a lot…”—

MOVE-S&P Divergence — Cowen says the MOVE Index has spiked while the S&P 500 has not fallen, diverging from a pattern he says has often accompanied equity declines. He notes that the relationship has not been consistent historically.

“And if you look at the move index, right? So the bond market option volatility estimate index, you can see that that is, you know, has spiked considerably here…”—

LABOR-MARKET

Unemployment Increase — Benjamin Cowen says the unemployment rate rose from 4.14% to 4.18%, rounding from 4.1% to 4.2%. He calls the increase potentially benign and says it is too early to know whether it matters.

“The unemployment rate came in slightly higher than before. It's somewhat benign in one sense because last month I believe it came in at 4.14% which rounded to 4…”—

Labor-Force Entrants — Benjamin Cowen says new labor-force entrants increased from 702,000 to about 818,000, the highest level in over a year excluding December. He says the influx of job seekers is one reason unemployment could rise even as job losses decline.

“If you look at re-entrance to the labor force, that went up…”—

Hiring And Layoffs — Cowen argues that low hiring is making it harder for unemployed people to find work, even as layoffs and discharges have declined. For now, he frames the weakness as a job-finding problem rather than a job-retention problem.

“Okay. So what's what's occurring right now is that hiring is down, but layoffs are also down. If you look at hires, hires are really low still, right?…”—

MONETARY-POLICY

Crypto And Tight Policy — Benjamin Cowen argues that tighter monetary policy does not rule out a cryptocurrency bull market. He cites 2019 and 2023 through 2025 as periods when bull markets occurred despite tighter policy.

“You know, I think the macro last cycle helped us to identify in the cryptocurrency world why you wouldn't see a rotation from Bitcoin to altcoins like a durable rotation…”—

Renewed Quantitative Tightening — Benjamin Cowen speculates that the Fed could restart quantitative tightening to help combat inflation and reduce the need for substantially higher interest rates. He notes that Kevin Warsh supports reducing the Fed's balance sheet and says QT might attract less attention than rate increases.

“You know, I think one argument too that I don't know if it's going to become a thing or not, but with inflation, if they really don't want to raise…”—

Labor Force Participation

Cowen says unemployment rose modestly mainly because more people entered or reentered the labor force, while layoffs declined and younger job seekers faced a tougher market.

Payroll Growth Weakens

Nonfarm payroll growth came in below expectations, and Cowen notes that year-over-year job gains have little cushion before turning negative, making the trend worth monitoring.

Yields And Inflation

Despite soft PCE and labor readings, longer-term Treasury yields rose, which Cowen attributes to persistent inflation concerns, including a hotter-than-expected Tokyo CPI reading.

Credit Spreads Widen

CCC and high-yield spreads have risen while equities remain strong; Cowen treats further widening as a risk to watch rather than a definitive recession signal.

Small Caps Diverge

The Russell 2000, equal-weight S&P, and Dow have weakened as the mega-cap-led S&P stays near highs, leaving open whether small caps recover or large indexes catch down.

Recession Risk Dashboard

Cowen describes recession indicators as mostly subdued but says rising interest-rate risk deserves attention, while cautioning that many dashboard signals react only after a downturn begins.

Crypto And Macro Strategy

Cowen advises investors to use a durable strategy rather than trade solely on macro signals, noting that crypto bull markets can occur even under tighter monetary conditions.

QT And Japan Rates

Cowen speculates that renewed quantitative tightening could help restrain inflation, while markets expect the Fed to hold and the Bank of Japan to keep raising rates.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

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