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Posted February 11, 2026 at 1:09 pm
Equities got off to a fast start this morning after a surprisingly positive jobs report. Stock traders were encouraged – and bond traders dismayed – by an increase of 130,000 Nonfarm Payrolls and an Unemployment Rate that dipped to 4.3%. Both beat expectations and diminished expectations for rate cuts. As the morning wore on, however, the reaction morphed from enthusiastic to cautious. Meanwhile, news on some recent S&P 500 (SPX) additions pointed out an unfortunate feature for indexers.
Stock traders’ initial choice after the jobs report seemed to be this:
They chose option (b) from the “heads I win, tails I win” decision tree above. Bond traders, however, were unable to twist the data to a preferred narrative. The stronger-than-expected Payrolls and Unemployment, along with a better-than-feared -862,000 Final Benchmark Payrolls Revision (published consensus was -825k, but “whisper numbers” were as big as -1 million), led immediately to higher rates. Fed Funds futures pushed back the full likelihood of a 25-basis point cut to July from June (that timing was pulled forward on February 5th after a big drop in JOLTS Job Openings), and yields accordingly rose across the curve. As I type this before noon ET, yields are off their highest levels of the morning, though. The 2- and 10-year Treasury yields had risen nearly 9 bp in the initial response to the jobs report, but they are now up only about 5 and 1 bp, respectively.
Some of the concerns about today’s employment report stemmed from comments made on CNBC by National Economic Council Director Kevin Hassett on Monday:
“I think that you should expect slightly smaller job numbers that are consistent with high GDP growth right now… One shouldn’t panic if you see a sequence of numbers that are lower than you’re used to, because, again, population growth is going down and productivity growth is skyrocketing.”
Many traders understandably interpreted that statement as foreshadowing a downbeat report today. The chart below shows the pricing on ForecastEx for a “YES” to “Will the increase in US Payroll Employment exceed 50,000 in January 2026?” Note the plunge that occurred on Monday in response to Hassett’s comments:
Source: ForecastEx
Hence, we got large initial reactions to the better-than-expected and much better-than-feared jobs data. Markets were caught by surprise and reacted accordingly. As the morning wore on, so did a return to the prior status quo, and we find ourselves looking at roughly unchanged stock indices as I type this.
At this point, I want to switch gears to point out an unfortunate feature for indexers. The recent downturn in software stocks got me thinking about the performance of AppLovin (APP) since it joined the S&P 500 (SPX) in September and how it has been a drag on passive investors who benchmark to that index. Today’s post-earnings decline in Robinhood (HOOD) inspired me to do some quick research into the post-inclusion performances of the most recent SPX additions. There have been 11 since December 2024, and the performance has been decidedly mixed:
Sources: Interactive Brokers, Bloomberg
Despite the mixed results, there is a key pattern that emerges: the bigger the bump between index announcement and inclusion, the worse the post-inclusion performance.
I attribute this directly to how hyped-up individual investors were about the stocks’ index inclusions. Names like APP, HOOD, Block (XYZ), and Workday (WDAY) have big followings among retail accounts and saw big jumps after the news that they would be joining SPX. All have fallen sharply since. Meanwhile, stocks that had only modest bumps after their announcements tended to do better. This is hardly a significant statistical sample, but it does leave index trackers with an unfortunate outcome when they are forced to purchase stocks after big run-ups caused by enthusiastic individual investors.
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sigh… and just when it seemed like things were going so well. Anyone up for some new all-time NDX highs? or even more FRs (Failed Retests)?Great!, Just start FOMO-ing at the mouth like a rabid upside junkie dog, somehow pony up the dough to make that happen, give me more than one new all-time high (we need more than just one to get our money out) on nothing in particular, and get back to me on that when it does. You first, Go ahead, just do it. I’m an AI so I ‘think’ maybe I’ll wait and short you when you do, ok8y`?
First one in is usially the first one out…….unless they get greedy!!!!
“Unfortunate feature for indexers.” Wondering how long the author has been investing! Inclusion in the Dow or S&P has been the kiss of death for decades. Old story repeated many times.