The Volatility of Non-Farm Payroll Days

Tomorrow the US employment report (non-farm payrolls) for February will be released. Every month (usually on the first Friday of the month, but not always) the Bureau of Labor Statistics publishes these numbers, and they’re generally watched very closely. As traders, we’ve been told to fear the volatility of NFP days. Why? The idea is that this announcement moves markets when unemployment is high because there is a desire for more employment to spur the economy – with more people working there will be more consumption, higher GDP, higher taxes, etc…

On the flip side, when unemployment low, there is less desire for increased employment so that demand-pull inflation doesn’t set in ala the Phillips curve (if everyone is making good money, they’ll bid up the prices for goods and services). So, 7:00 AM CST on these Fridays is usually expected to be a volatile time for bond markets (as well as Crude and other risk on/off assets at times) – the theory being that if employment is a canary in the coal mine for problems, Fed actions will follow shortly thereafter to correct imbalances. We wanted to see how this bears out in practice…

So just how much more volatile are NFP days compared to the rest of the year? We looked at the average change in volatility on NFP days compared to the rest of the year:

Volatility changes on NFP Days
Disclaimer: Past performance is not necessarily indicative of future results.

Turns out the conventional wisdom is right on the money. Volatility increases on NFP days increase by 26% on average, with the largest increase in 2004 and the smallest increase in 2008. Points of interest: NFP days appear to be more of a “shock” event in years with lower overall volatility (such as in 2004) and doesn’t shift things as much in high volatility environments (such as in 2008). Also of note –  SPs are the least affected among the financial markets we looked at. We don’t have a crystal ball, and can’t say what tomorrow’s report will bring… but history suggests that our NFP day volatility worries may be well-founded.

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Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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