Labor Market Drivers And Revisions
The BLS linked much of the drop to healthcare, down 28K, tied to a Kaiser Permanente strike affecting over 30K workers in California and Hawaii. Federal payrolls fell 10K and are down 330K since October 2024, while construction lost 11K, manufacturing 12K, and transport and warehousing 11K. Unemployment rose to 4.4% from 4.3% and participation slipped to 62% from 62.1%. Average hourly earnings rose 0.4% month-on-month and 3.8% year-on-year, and average unemployment duration reached 25.7 weeks. January retail sales fell 0.2%, ex-autos was 0.0%, and the control group rose 0.3%. Markets moved rate-cut expectations towards July, with a 96% chance of no change on 18 March, as the 10-year yield rose above 4.17% and the 2s10s spread widened to 57 basis points. Goldman Sachs fell 3.4%, American Express 3.2%, and JPMorgan about 3%, while Caterpillar dropped 2.8%. Blue Owl fell 6%, BlackRock and Blackstone about 4%, while Exxon and Chevron rose over 1%, Occidental gained 3.3%, gold traded above $5,150, and the VIX rose nearly 10% to above 26. With the February 2026 jobs report coming in soft at just 15K this morning, we are seeing an echo of the shock -92K print from this exact week in 2025. The unemployment rate ticking up to 4.5% confirms a cooling labor market, putting downside risk on the table for the coming weeks. This setup looks very familiar and warrants a defensive posture in our derivatives books.Volatility Hedges And Macro Positioning
The CBOE Volatility Index (VIX) is already up 8% to over 22, but we remember it surged past 26 this time last year on similar stagflation fears. This makes buying April VIX calls or out-of-the-money SPY puts an attractive way to position for a potential repeat of that market anxiety. For perspective, the VIX’s long-term average is closer to 19, so current levels suggest the market is pricing in trouble but may still be underestimating the potential for a sharp move. Oil is once again the main problem, with Brent crude futures for May delivery recently crossing $93 a barrel due to renewed supply disruptions in the Strait of Hormuz. Even with weak jobs, stubbornly high wage growth of 3.9% year-over-year makes it hard for the Federal Reserve to signal the aggressive cuts the market wants. The CME FedWatch tool now shows only a 40% chance of a rate cut by the June meeting, down from over 70% just a month ago. We saw in 2025 how financials and industrials led the selloff, and we should expect similar underperformance now as recession fears grow. Consider buying puts on the Financial Select Sector SPDR Fund (XLF) while simultaneously buying calls on the Energy Select Sector SPDR Fund (XLE) to play this divergence. The energy sector has already outperformed financials by 6% over the last three weeks, a trend that is likely to accelerate if geopolitical tensions remain high. The consumer is also showing clear signs of fatigue, which wasn’t the case just a few months ago. U.S. revolving credit debt hit a record $1.35 trillion in the latest quarterly data, suggesting consumers have less capacity to absorb high energy prices and sticky inflation. This environment makes puts on consumer discretionary ETFs like the XLY a logical hedge against a further slowdown in spending. Last year’s turmoil widened the 2s10s Treasury spread, and today we see that spread already tightening to just 45 basis points, a classic late-cycle signal of economic concern. This suggests growing recession risk, making it a good time to look at buying puts on high-yield corporate bond ETFs like HYG. As credit quality concerns rise with a slowing economy, the cost to insure against defaults will increase, making these positions profitable. Create your live VT Markets account and start trading now.
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