Missed Expectations...

The week was all about inflation data, but have we inflated its importance?

Monday S&P 500 0.04% | NASDAQ 0.03%

Markets were little changed on the day. There was very little economic news out before the bell on Monday. The week will likely be sharply focused on Wednesday when we get the updated figures for March inflation. The report is expected to show an increase from February.

Tuesday S&P 500 0.14% | NASDAQ 0.32%

Small business sentiment slipped in March to the lowest level since January 2013! Even still, markets advanced ahead of inflation data on Wednesday. Growth stocks out-performed which signals that an increase of inflation data would likely not hamper growth stock leadership. This is important because the rate cuts expected later this year would favor growth stocks most.

Wednesday S&P 500 0.95% | NASDAQ 0.84%

Consumer Price Index (CPI) information showed that inflation has stopped cooling. A 0.1% reading was replaced with a 0.4% reading. The main culprits were transportation services, energy, and home services. The markets moved sharply lower, but likely on the Federal Reserve Board (FRB) minutes release, rather than on CPI data. FRB Minutes showed concerns that inflation was stagnating, endangering the likelihood of the FRB cutting rates later this year.

Thursday S&P 500 0.74% | NASDAQ 1.68%

Producer Price Index (PPI), which is a proxy for wholesale inflation rose less than expected. Initial jobless claims fell on the day supporting a strong job market. The weaker than expected inflation data led to a bounce back rally by markets. Little was changed about rate cut expectations moving forward however, given the FRB minutes from March.

Friday S&P 500 1.46% | NASDAQ 1.62%

Michigan Consumer Sentiment is projected to slip, but remains in the high 70’s. Financial firms got earnings season underway on Friday and they did not impress. The slide on Friday solidified a down week for equities. The Nasdaq led markets lower on the day, but its Thursday rebound mitigated losses for the week.

Conclusion S&P 500 1.56% | NASDAQ 0.45%

The week ended well into the red. The fall represented the worst week for the S&P 500 since January. In January the focus was on the markets accepting that the FRB may only cut rates three times this year. This time it is on the realization that perhaps the FRB may not cut rates at all. As of now investor expectations are that the FRB will cut rates one, maybe two times (September and December). The meeting in two weeks should provide more clarity. Even with this change to rate cut expectations, it will be interesting to see what action the FRB takes with Quantitative Tightening. If they do start to slow the selling bonds that should provide some relief.

~ Your Future… Our Services… Together! ~

Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:

Facebook | Twitter | LinkedIn

FOR MORE INFORMATION:

If you would like to receive this weekly article and other timely information follow us, here.

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.

Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.

Jobs data missed expectations in April, but earnings did not disappoint! What drove markets last week?

Monday

Markets opened the week (and month) in the green. The S&P 500 led the way, up 0.25%, while the NASDAQ shed about 0.5%. This deviation is a continuation of the re-opening trade that has been playing out over the last 6 months.

Tuesday

There was a sharp reversal of fortunes on Tuesday as the markets dove in a way we had not seen since March. Former Federal Reserve Board (FRB) Chair, Janet Yellen indicated that monetary policy may tighten sooner than the FRB is saying. She later indicated (after market close) she in no way was trying to postulate on the direction of the FRB.

Wednesday

As a result of former FRB Chair Yellen’s retraction, markets surged at the open. This momentum faded as the day wore on. The S&P 500 ended up gaining 0.07%, while the NASDAQ fell 0.37%. The NASDAQ led the losses on Tuesday, so this further extends the re-opening trade at play.

Thursday

As a prelude to the jobs report, markets celebrated the lowest initial unemployment number since the start of the pandemic. The figure fell to 498K. For perspective, pre-pandemic, the figure was frequently around 200K. The S&P 500 gained 0.8% on the day, with the NASDAQ rising by 0.4%.

Friday

The monthly unemployment report was in focus on Friday. It was an abject disappointment. Unemployment rose to 6.1% from 6.0% and nonfarm payroll employment rose 266K. Expectations were for the unemployment rate to fall to 5.8% and payrolls to add 1M! While new hirers disappointed, the participation rate increased, which left more unemployed workers to be counted. By that measure the increase in the unemployment rate is not as disappointing. It just means that more people are feeling optimistic about job prospects. Even with the disappointment around jobs the S&P 500 managed to add 0.7% on the day.

Conclusion

If there is one thing the jobs report reminded us of this past Friday, it is that recoveries are uneven. The S&P 500 added 1.5% on the week. Earnings season has been robust with growth near 50% YoY and 86% of companies beating expectations. The miss on employment was actually viewed as a net positive. The FRB may not take the punch bowl away too soon as expected. Also, perhaps inflation concerns were overblown. More likely than not, it is an example of how non-linear life can be. We will likely see a lift in new hirers in coming months offsetting April’s ‘disappointment’.