The United States ADP employment change 4-week average fell to 25.5K in May 2023, down from 29K previously. The move points to a softer recent pace of job gains on this measure.
The latest reading lowers the rolling average by 3.5K, indicating reduced momentum relative to the prior period. ADP is closely watched for clues on near-term labour market conditions.
Labor Market Softness And Federal Reserve Outlook
The slowing trend in job creation from 2023 is now a clear pattern in our current data. The most recent ADP report for May 2026 showed a gain of only 95,000 private sector jobs, significantly missing expectations and confirming a cooling labor market. This trend, combined with job openings falling to a four-year low of 7.9 million, strengthens our conviction that the Federal Reserve will act.
Given this outlook, we are positioning for lower interest rates in the coming months. We are adding to long positions in December 2026 SOFR futures, as the market is now pricing in a greater than 75% probability of a rate cut by the September FOMC meeting. The recent drop in the 2-year Treasury yield below 4.10% suggests this move has further to run.
Market Strategy And Portfolio Positioning
On the equity side, this cooling data introduces significant volatility, as traders debate a “soft landing” versus a recession. We are buying VIX call options with July and August expirations to profit from the price swings we anticipate around the next CPI and payrolls reports. This is a cheaper way to hedge our broader portfolio than selling index futures directly.
We are also looking at yield curve steepener trades, which profit as short-term rates fall faster than long-term ones. A position that is long 2-year Treasury note futures and short 10-year Treasury note futures appears attractive. This structure will perform well as the Fed begins its easing cycle and the yield curve returns to a more normal upward slope.
