This morning was light on economic news, with the only report of real significance to investors coming from the Labor Department at 8:30 (EDT). That report showed initial jobless claims for the week ending March 30th totaled 221,000, which was up 9,000 from the previous week’s revised figure, but still indicative of a tight labor market. We also learned the U.S. trade gap widened by nearly 2%, to $68.9 billion, in February.
The claims data came on the heels of a strong report on private-sector payrolls from Automatic Data Processing (ADP), which showed an increase of 184,000 jobs in March. The consensus was calling for the creation of 155,000 jobs last month. The ADP report is the precursor to the Labor Department’s report on March employment and unemployment, which will be released before the start of trading tomorrow morning. The employment report has the potential to move the market notably during the week’s final session, as it could have an impact on the Federal Reserve’s schedule for possible rate cuts.
Trading on Wall Street this week has been driven by news on the U.S. economy. Earlier this week, a strong report on manufacturing activity, showing expansion in the sector for the first time after 16 months of contraction, was the main impetus. The manufacturing report, along with the aforementioned ADP jobs report, may be an indication that the U.S. economy is healthy and still growing. The data raised sentiment on Wall Street that the Fed may not be in a rush to begin cutting interest rates. This put upward pressure on Treasury market yields and, along with a poor performance from the stocks of the health insurance companies after news broke that the 2025 Medicare Advantage rates would be lower than anticipated, sparked a selloff. In particular, the interest-rate sensitive sectors, including the utilities and real estate groups, were out of favor on the possibility of interest rates remaining higher.
Treasury yields, after hitting a 2024 high yesterday morning, did pullback some after a report from the Institute for Supply Management (ISM), a Tempe, Arizona-based trade group, showed a cooling in the pace of non-manufacturing activity last month. The services sector has played a huge role in the sticky inflation picture of late, so a slowdown in activity and particularly prices for services raised hope that inflation is still moving in the right direction. The non-manufacturing report helped the major equity averages rally off earlier lows and finish not too far removed from the neutral line. This morning, the equity futures are presaging a higher opening for the U.S. stock market, likely aided by the yield on the benchmark 10-year Treasury note stabilizing at just above the 4.35% mark.
Wall Street also was closely watching the latest commentary from Federal Reserve Chairman Jerome Powell yesterday afternoon at the Stanford Business, Government, and Society Forum. Chairman Powell reiterated that the U.S. central bank has time to deliberate over its first interest rate cut, given the strength of the economy and recent sticky inflation readings. Mr. Powell said that the Fed would like to see more evidence that inflation remains on a downward trajectory and believes that near-term monetary policy decisions will be data-driven. The chairman is encouraged that the lead bank has made significant progress on the inflation front without hurting the jobs market and the health of the overall economy. Our sense is that the likelihood of an interest-rate cut before the second half of this year is fading. This could put some upward pressure on Treasury yields and keep the breadth of potential near-term equity market gains in check. Investors should note that six senior Federal Reserve officials are scheduled to speak on monetary policy today.
Yesterday also brought some news from the corporate world when reports surfaced that Walt Disney Company (DIS) shareholders voted in favor of CEO Robert Iger and rebuffed activist investor Nelson Peltz and his allies, who sought seats on the company’s board in hopes of shaking up the leadership team at the entertainment giant. Mr. Iger returned to his leadership role in November of 2022, replacing his hand-picked successor, Bob Chapek, whose two-year tenure was marked by operational missteps and weakening financial performance. Shares of Disney, which have rallied in recent months, fell on the news and are pointing to a nominally lower opening this morning. – William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
CLICK HERE for more information on our services or call 1-800-VALUELINE (1-800-825-8354). Our account managers are available Monday through Friday, 8:00 AM to 6:00 PM Eastern Time.
