The US ADP employment change 4-week average increased to 26K on 14 March. The previous level was 10K.<\/p>\n
This is a rise of 16K over the prior reading. The data point refers to the 4-week average for ADP employment change.<\/p>\n
Looking back to last year, the ADP employment data from March 2025 was a key early warning signal. The jump in the four-week average from a sluggish 10K to 26K showed the labor market had more strength than many believed. This resilience meant the Federal Reserve would likely keep interest rates higher for longer than the market was pricing in at the time.<\/p>\n
This strength in the job market happened while inflation was proving stubborn, with the Consumer Price Index hovering around 3.2% in the first quarter of 2025. We should have been positioning for delayed rate cuts by using derivatives tied to the SOFR rate, anticipating yields would not fall as quickly as expected. This meant selling Fed Funds futures or buying put options on Treasury bond ETFs.<\/p>\n
The equity market became a two-sided coin because of this. A strong economy supports corporate profits, but high interest rates pressure valuations, creating a recipe for volatility. With the VIX trading at subdued levels near 14 during that period in 2025, buying cheap call options on the VIX or protective puts on the S&P 500 was the logical hedge against a market tantrum.<\/p>\n
Furthermore, a hawkish Federal Reserve stance is typically bullish for the US dollar. That data point from last year should have prompted us to look at currency derivatives that profit from a stronger dollar. This could have included buying call options on the U.S. Dollar Index (DXY) or taking positions against currencies like the Euro.<\/p>\n
As we look at today\u2019s market, we see similar complacency about the path of inflation and jobs. The lesson from last year’s surprise ADP number is that we must remain hedged against unexpected economic strength. We should therefore consider positioning for potential upside surprises in upcoming economic data, as history shows these events can rapidly shift market sentiment.<\/p>\n
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