Friday is employment reporting day. That means the stakes are high for the lagging stock market to rise this week as investors assess the possibility of the Federal Reserve’s interest rate cuts later this year.
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On average, economists surveyed by the Wall Street Journal expect nonfarm payrolls to rise by 200,000 in March and the unemployment rate to fall to 3.8% from 3.9%. Hourly wage growth is expected to slow to 4.1% year-on-year from 4.3% in February.
look: March employment statistics forecast: 200,000 new hires, unemployment rate 3.8%
Tom Essay, founder of Sevens Report Research, said in a note Thursday that the stock market’s development leading up to the release of the Labor Department’s April employment report at 8:30 a.m. ET is a bit unusual.
He said that while a jobs report that is either “too hot” or “too cold” is often enough to cause a market decline, Friday’s biggest danger is a firm hold on stronger-than-expected numbers. He said it was leaning.
“Investors are wary that another strong jobs report could cause the Fed to delay interest rate cuts from June until late summer (or even late 2024),” the essay wrote. “If that happens, we would expect a partial repeat of Tuesday.”The Dow Jones Industrial Average DJIA fell nearly 400 points, or 1%, the S&P 500 SPX fell 0.7% and the Nasdaq Composite COMP fell 1%. % fell.
Those concerns were underscored Thursday afternoon by Minneapolis Fed President Kashkari, who said the two rate cuts in 2024 may not materialize if inflation continues to move sideways. . Following his remarks, stock prices accelerated, with the Dow Jones Industrial Average dropping about 530 points (1.4%) and the S&P 500 dropping 1.2%.
Of course, investors entered 2024 expecting the Fed to cut interest rates by up to six quarter points between March and the end of the year. Those expectations were narrowed down to about three rate cuts, ending March without any, but stocks still rose to a series of record highs, and the S&P 500 index rose about 10% in the first quarter. .
Federal funds futures prices Thursday afternoon reflected a 40.7% chance that policymakers would leave key interest rates unchanged at their June meeting, according to the CME FedWatch tool.
The problem, Essay said, is that the combination of “too hot” numbers – more than 250,000 payrolls, an unemployment rate of more than 3.7% and wage growth of more than 4.3% – means that U.S. Treasury yields will rise further, as seen earlier this year. “It’s about causing an increase,” he said. week. This pushes the 10-year bond yield BX:TMUBMUSD10Y, which was trading around 4.31% as of Thursday afternoon, further out of its “equity-positive” trading range of 3.75%-4.25%. there is a possibility.
In fact, the expected spike in yields after such a high number could cause the S&P 500 index to fall by more than 1%, while defensive sectors such as utilities, healthcare, and consumer staples may outperform. It is expected that this will happen.
He said that a “just right” number that closely matches expectations could cause a modest “relief” in stock prices, but a “too cold” number, such as a payroll increase of less than 50,000, could He said this would raise questions about the soundness of the company. economy. Such a view would feed fears about the strength of the economy, but could also trigger a “worse is better” reaction in the short term as Treasury yields fall, Essay argued.
Stock market today: Invesco says timing of rate cut is less important for stocks than knowing it’s coming
