The recent US jobs report triggered a curious reaction in the market according to JPMorgan [JPM]. While the data indicated a strong labor market with rising payroll numbers, it also caused a rise in unemployment. This seemingly mixed bag had opposing effects on the two major asset classes:

• Stock Market Rally: Equity prices continued their climb, seemingly unfazed by the potential for the Federal Reserve to raise interest rates sooner in response to a robust job market.
• Bond Market Sell-Off: Conversely, bond prices plummeted, with yields (interest rates) rising sharply. This suggests that investors in the bond market are anticipating a more aggressive Fed stance on interest rates to combat inflation.

JPMorgan's Take:

• Equity Disconnect: JPM analysts view this divergence between equities and bonds with concern. The continued rise in stock prices despite signs of rising interest rates seems unsustainable in their view.
• Defensive Portfolio Tilt: JPMorgan has adjusted its model portfolio to reflect this concern. They have reduced their holdings in equities (taking an underweight position) and increased their exposure to commodities and cash (considered safer havens during market uncertainty).
• European Central Bank (ECB) Outlook: The bank also sees a potential shift in the Eurozone. They recently closed their overweight stance in euro area versus US bonds, believing that the ECB's dovish stance on interest rates might not hold for much longer due to rising inflation pressures in Europe.

The Big Picture:

The market seems to be grappling with mixed signals. While the economic data is positive, it also raises concerns about inflation and potential interest rate hikes. JPMorgan's analysis highlights the potential for a correction in the stock market, particularly if the disconnect between equities and bonds persists. Investors should be aware of these risks and consider how they might impact their investment strategies.