Evercore sees strong jobs data not altering Fed September call

U.S. nonfarm payrolls rose 162,000 in August (above expectations), with unemployment up 5 bps to 4.14% and the labor force participation rate up 0.2pp to 61.6%, boosting bets for a Fed rate hike. Goldman estimates underlying job growth at 53,000 versus 5,000 prior to the report, and revisions pushed the three-month average to 71,000 from 20,000. Evercore says payroll strength supports confidence the labor market can withstand a hike, but next week’s inflation data will still be the key driver for the September hold vs hike decision—while stronger employment could matter more for December.

Analysis

The immediate market mechanism is front-end yield re-pricing, not a broad growth scare. The first losers are duration-heavy assets with weak near-term cash-flow visibility: small caps (IWM), unprofitable tech (ARKK), REITs (XLRE), and levered credit proxies that depend on refinancing windows staying open. A more subtle loser is the capital-markets complex: higher odds of a hike tend to delay sponsor activity, which hits advisory-heavy franchises like EVR before it shows up in headline bank P&Ls.

The second-order winner set is narrower. Universal banks with diversified trading and financing revenue, especially GS, can absorb more volatility better than pure advisory names, but this is not a clean bullish bank tape unless higher rates come with sustained growth rather than tightening credit. If the labor backdrop remains firm for 1-3 months, the bigger damage is multiple compression in high-duration equities and a slower reopening in M&A, not an immediate earnings recession.

Contrarian risk: the market may be overpaying for one strong payroll print while underweighting that participation improved and the unemployment rate still rose, which makes the Fed decision hinge on inflation next week. That means the hawkish repricing is vulnerable to a soft CPI/PPI/PCE sequence; if that happens, front-end yields can snap back quickly and the rate-sensitive short gets crowded. The structural 6-18 month risk is a higher-for-longer policy regime that keeps real rates elevated and suppresses valuation multiples even if nominal growth holds up.

Key Decisions for Investors

• Short IWM via put spreads into the next CPI/Fed window; best risk/reward is a 1-3 week tactical hedge against higher front-end yields and small-cap refinancing stress. Falsifier: a soft inflation print that reverses 2Y Treasury repricing.
• Pair long GS / short EVR for 1-3 months. Thesis: elevated-rate volatility supports GS trading/financing more than EVR’s advisory pipeline. Falsifier: a rapid M&A rebound or lower-for-longer yields that steepen deal activity.
• Underweight XLRE and high-duration growth baskets on any relief rally; this is a multiple-compression trade, not an earnings-collapse trade. Use tighter stops if CPI comes in below consensus.
• If you want a cleaner rates expression, buy TLT put spreads rather than outright futures; the setup is hawkish but binary around inflation data, so defined-risk convexity is preferable.