It's Hump day of Jobs Week which means we get the ADP Private Payrolls Report. For the first four months of the year, we've had solid jobs data and the link between the ADP report on Wednesdays has been strong with the Non-farm Payrolls reports we receive on Fridays of Jobs Week. If the link remains strong this time, expect a weak NFP report on Friday since today's ADP report came in at 156K, 40K less than the 196K expected. This is providing some support to the bond market since oil is up today after a two day sell-off and, perhaps more importantly, Unit Labor Costs rose 4.1% vs. estimates of 3.3% - inflationary and not good for the prospects of the Fed keep rates where they are. 1Q Non-farm Productivity wasn't as bad as the estimates, coming in at -1.0% vs. estimates of -1.4%. ISM Non-manufacturing (services) came in a point better than expected at 55.7 vs. expectations of 54.7 - this is strong as well.
From a technical standpoint, the RSI is just below the overbought threshold. Yesterday the FNMA benchmark bond closed up 32 basis points thanks to the oil sell-off and lots of week data and comments from around the world. It closed 10 basis points off its high for the day and 15 basis points below the first level of resistance. It is currently down 5 basis points and is 10 basis points above the first level of support. Yesterday was an opportunity day - if you didn't lock on Monday morning before the bond slid lower throughout the day then you got an opportunity to take advantage of better pricing before today's jobs data.
If the link between ADP Private Payrolls and NFP remains strong, expect the NFP number to disappoint on Friday. With all of the recent (fairly) strong economic data that we've had, the ADP data is a bit of a surprise and perhaps an outlier. If you didn't lock yesterday and you are in a position to be able to lock, I would lock today while the bond is basically flat just in case Friday's NFP is completely different than the ADP numbers today.
BONUS Part 2: On Monday, I shared a tip regarding real estate investing - I teach seminars where I share real estate investing strategies and the benefits that investing in real estate can provide that other investment options often don't have. Don't get me wrong, I think we should all be well diversified with investments in a variety of things including stocks, bonds, mutual funds, and real estate - and maybe even some gold and / or some various currencies. My bonus strategy today focuses on income vs. appreciation. When it comes to investing there is a rule of thumb that says you should have the percentage of your money invested in income-oriented investments (typically bonds) as your age. For instance, if you are 60 years old, 60% of your portfolio should be in bonds. The idea behind this is that the closer a person gets to retirement, 1) the less volatile the investments should be - stocks are more volatile than bonds, usually, and 2) people need more income when they retire to replace the income from their job they just quit.
With this in mind, I think real estate investors should focus on properties that will provide more appreciation in their younger years such as single family residences in desirable parts of town close to good schools, shopping and employment (I wrote about this on Monday when I asked the questions "Would you live in the home?"). As you get closer to retiring, you may want to switch some of your rental properties from single family homes to multi-family units like duplexes or 4-plexes or invest in town homes; with few exceptions, I would stay away from condos because of the (usually high) association fees. You could use the equity that you've built up in your single family home investments to buy these other units with cash and increase your income while still having the benefit of some appreciation and some great tax deductions. Depending on the size of your portfolio, you may consider a nice piece of commercial property such as a strip mall or an office building that you could rent to doctors, lawyers, CPAs, etc. I'll have my final real estate investing bonus information on Friday where I will discuss how you can buy your first investment property with only 5% down and talk about the great tax benefits of real estate investing. Make it a great day.