The futures markets inched lower this morning following the release of the Automatic Data Processing (ADP) employment report. This report showed that jobs increased by 184,000 in March by the payroll processor’s measure, exceeding expectations and indicating that the labor market is picking up some steam. Leisure and hospital jobs increased by around 63,000 positions, while construction picked up 33,000 new employees. Most of the growth came from businesses with more than 50 employees, while more of the job gains were located in the South Atlantic region of the U.S. In terms of pay, job stayers received an additional 5.1% in compensation compared to the year prior, while job changers received 10.0% more. The stock futures moved lower on this report, as traders interpreted these indicators of a strong labor market and economy as supporting the recent narrative that interest rates will be higher for longer, and this move lower suggests a weaker start to the trading day. Just after noon, Federal Reserve Chairman Jerome Powell will give a speech regarding the economic outlook at the Stanford Business, Society, and Government Forum, which will likely affect trading.
The stock market performed poorly on Tuesday, continuing a decline in the major market indices on Monday. Traders have started to trim their positions in the early second quarter, following strong performance in the first quarter. The major indices dropped heavily in the early morning before recovering a portion of their losses late in the day. All told, the S&P 500 fell 38 points (down 0.72%), the NASDAQ declined 156 points (down 0.95%), and the Dow Jones Industrial Average was off 397 points (down 1.00%).
Moreover, market breadth was rather negative, with decliners outpacing advancers by a 3.0-to-1.0 ratio. Energy stocks were among the best performers, aided by a notable increase in the related commodities. However, most indices were in the red yesterday, with healthcare issues among the worst performers. Many health insurance providers underperformed, hurt by a lower-than-anticipated Government rate decision on Medicare Advantage plans; the Administration also finalized a rule that will cap short-term health insurance plans to three months. The prior rule had a cap of three years. Elsewhere, the decline in consumer discretionary equities was also notable.
In commodity news, oil prices rapidly increased, continuing an upward trend since last Wednesday, as traders have been pricing in greater geopolitical risks. Recent escalation in the Middle East and attacks on Russian oil refineries have caused concerns about future supplies. Elsewhere, U.S. Treasury bond yields were mixed, with short-term rates rising and long-term ones falling. The Chicago Board Options Exchange Volatility Index, or VIX, commonly known as the fear index, rose rapidly yesterday as traders demanded higher levels of options protection.
Several economic reports will be released in the days ahead. These include initial jobless claims and the U.S. trade balance on Thursday, and the U.S. nonfarm payrolls, unemployment rate, and hourly wages on Friday. Moreover, several regional Federal Reserve Presidents will give speeches on the state of the economy in the days ahead, following Chairman Powell’s talk today. Earnings season will begin next week, with several large banks slated to release quarterly results then. - John E. Seibert III
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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