Investors were on tenterhooks this morning, awaiting new economic data. The major market indexes are poised for a positive open. Prior to today’s trading, the Bureau of Labor Statistics reported that 303,000 people were added to nonfarm employment rolls in the month of March, versus more-modest expectations for an increase of 200,000 and the previous tally of 275,000. The unemployment rate for the month came in at 3.8%, matching economists’ outlook and one-tenth of a point below the February level. Hourly wages rose 0.3%, month over month, and 4.1%, year to year. These figures were on par with consensus expert estimates. The respective prior-month readings were 0.2% (revised) and 4.3%. Labor force participation rose a solid two tenths, to 62.7%. The average work week expanded to 34.4 hours from the previous mark of 34.3 hours. Treasury rates ticked higher on the news.
Both the domestic manufacturing and services sectors are modestly in expansion mode and this is shoring up employment. For the most part, with the global pandemic fading further into the back ground, companies have largely right-sized their work-forces, having completed the rapid expansion of some sectors resulting from the pandemic cycle. Workers are aware of this situation and are changing jobs less frequently. That said, there are still significantly more positions open than people seeking gainful employment. With the exception of mandated minimum wage hikes, most visibly in California, and a couple of new union contracts in the 2023 headlines, workers have not exercised their leverage to ramp pay substantially higher, thus helping to avoid a detrimental wage-price spiral. Investors will now turn their attention to consumer price index data due to be released this coming Wednesday.
The stock market indexes were under stress in the first four trading days of this week and the new calendar quarter. Through Thursday’s close, the blue-chip Dow Jones Industrial Average was down about 3%, while the tech-heavy NASDAQ composite and the broader Standard & Poor’s 500 index were each off by 2%. Given solid recent corporate earnings reports, resilient employment, and stronger-than-expected inflation data, concern has grown on Wall Street that the Federal Reserve might not cut short-term interest rates in three one-quarter-point increments before the close of 2024. Currently the federal funds rate is 5.25%-5.50%. Fear on the Street heightened Thursday, when Minnesota Fed President Neel Kashkari suggested that the central bank may only reduce rates twice (by 50 basis points), if at all, depending on whether inflation trends lower. The Federal Open Market Committee (FOMC) will meet April 30-May 1 and decide on any adjustments to rate policy; the Street anticipates no changes.
There is still a majority of Wall Streeters forecasting an initial Fed rate cut at the mid-June FOMC get-together. It’s also worth noting that Fed Chairman Jerome Powell has not demonstratively backed away from his outlook for as much as a total 75-basis-point rate reduction this year, assuming inflation cooperates, which, of course, is not certain. At this time, the stock market is particularly sensitive to incoming economic data. Share-price volatility looks to step up from recent low levels.
Lately, interest-rate-sensitive equities have come under pressure. That includes financial, real estate, technology, and industrial issues. Considering the economic uncertainty, as well as geopolitical matters in the Middle East and Eastern Europe, it’s probably best to take a conservative stance toward investing. We advise weighting individual portfolios with stocks in companies having strong finances and leadership positions within their primary market sectors. Diversification, inclusive of cash and top-quality bond holdings, should remain a core strategy.
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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