What Happened Last Week When the Central Bank of the U.S. Economy Generated a Cool Cooldown and Its Effects on Wall Street?
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What this means for the Fed is that the cooldown in the latest jobs report likely won’t be enough for the central bank to pause rates at its next meeting.
What happened last week? The red-HOT labor market is finally cooling, flashing warning signals across Wall Street after a slew of economic reports.
Investors accordingly shed high-growth, large-cap stocks that have surged recently to rush into defensive stocks in industries like health care and consumer staples.
While tech stocks recovered somewhat by the end of the short week, the rest of the index still fell. The broad-based S&P 500 lost ground while the blue-chip Dow Jones Industrial Average rose.
Michael Arone thinks that it’s been a good counterbalance to the weak labor data last week and all the recession fears. This data suggests that the economy is still in pretty good shape, 10-year Treasury yields increased on Friday indicating there’s less fear about an imminent recession.
It is unclear how markets will react if the Fed does not cut rates this year. But there likely won’t be a notable rally unless the central bank pivots or at least indicates that it plans to soon, said George Cipolloni, portfolio manager at Penn Mutual Asset Management.
The labor market will probably stay strong in May and the Fed is likely to raise rates in May, according to Quincy Krosby.
The area that has the first to weaken as the economy slows are the interest rate sensitive parts of the market. Things like manufacturing and construction. That’s where the weakness in this jobs report is. The services areas are still strong. That’s where the shortage of qualified skilled workers remains. I think that you are seeing continued job strength in those areas.
The March jobs report revealed that US employers added a lower-than-expected 236,000 jobs last month. The economists expected a net increase in jobs for the month.
The First Month of Federal Reserve Rates and Inflationary Expectations: The Wall Street Wall and the Stock Market and Consumer Sentiment
Retail sales and the University of Michigan’s consumer sentiment survey. Earnings from JPMorgan Chase (JPM), Wells Fargo (WFC), BlackRock (BLK), Citigroup (C) and PNC Financial Services (PNC).
The stock markets were closed on Friday because the jobs report was released on a holiday.
It was the first monthly payroll report since Silicon Valley Bank and Signature Bank collapsed. The Federal Reserve began raising interest rates in March, 2022, and this year marks a full year of jobs data.
Wages went up by 4.2% from the year before and were up by 0.3% on the month. The three-month wage growth average has dropped to 3.8%. That’s moving closer to what Fed policymakers “believe to be in line with stable wage and inflation expectations,” wrote Joseph Brusuelas, chief economist at RSM in a note.
The Federal Reserve will have a chance to pause its efforts to restore price stability if wage data shows the risk of a wage price spiral is easing.
As it relates to the stock market, I would expect the cyclical sectors to do well — your industrials, your materials, your energy companies. If interest rates are rising, that’s going to weigh on growth stocks — technology and communication services sectors, for example. Less recession fears will mean investors won’t be as defensively positioned in classic staples like healthcare and utilities.
Yes, exactly. I think this report will lead to more participation in the stock market, it is difficult to make too much out of a single data point. If those recession fears begin to abate somewhat, and investors recognize that recession isn’t imminent, there will be more investment.
it did. I expect that inflation figures will continue to decelerate — or grow at a slower rate. The wage front is still the sticky part of inflation, I think. I think this can help alleviate some of the inflation pressures, but we will see how it goes into the report next week. And also the PPI report.
I’m not sure why, but from my perspective, the Fed hasn’t taken into consideration the structural changes in the labor force, and they’re still confused by it. I think the risk here is that they’ll continue to focus on raising rates to stabilize prices, perhaps underestimating the kind of structural changes in the labor economy that haven’t resulted in the type of weakness that they’ve been anticipating. I think that’s a risk for the economy and markets.
After decades of thriving growth bolstered by low interest rates and easy credit, commercial real estate has hit a wall. Office and retail property valuations have been falling since the pandemic brought about lower occupancy rates and changes in where people work and how they shop. The credit dependent industry has been hurt by the Feds efforts to fight inflation.
In a worst-case scenario, anxiety about bank lending to commercial real estate could spiral, prompting customers to yank their deposits. Silicon Valley Bank’s downfall in a bank run last month shook financial markets and raised fears of a recession.
Michael Reynolds is vice president of investment strategy at Glenmede, a wealth manager. If it becomes a problem for banks, one or two institutions could be caught in the middle.
Signs of strain are increasing. The proportion of commercial office mortgages where borrowers are behind with payments is rising, according to Trepp, which provides data on commercial real estate.
There are high-profile defaults that are making headlines. Earlier this year, a landlord owned by asset manager PIMCO defaulted on nearly $2 billion in debt for seven office buildings in San Francisco, New York City, Boston and Jersey City.
Source: https://www.cnn.com/2023/04/10/investing/premarket-stocks-trading/index.html
Tech and Big Tech: What Can We Expect from Big Tech During the Earnings Season? An Empirical Note on Thursday, January 17, 2019
Tech stocks led market losses in 2022, but seemed to rebound quickly at the start of this year. What should we expect from Big Tech during earnings season?
“Tech stocks have held up very well so far in 2023 and comfortably outpaced the overall market as we believe the tech sector has become the new ‘safety trade’ in this overall uncertain market,” he wrote in a note on Sunday evening.
Technology companies including Microsoft, Meta and others are working on cutting costs and conservative guidance already given in the January earnings season of rip the band-aid off moment, and tech is setting up for a green environment.