Last Week on Wall Street

Last Week on Wall Street - April 6th, 2024

S&P 500: -0.95% DOW: -2.27% NASDAQ: -0.79% 10-YR Yield: 4.40%

What Happened?

Stocks rallied on Friday, recovering from the Dow's worst week in over a year, as traders welcomed a jobs report that surpassed expectations and shrugged off a rise in interest rates. This bounce back, driven by a stronger-than-expected jobs report for March, showed nonfarm payrolls increasing by 303,000—well above the 200,000 expected. Despite this positive momentum, all three indexes were still on track for a weekly loss, largely due to heightened Treasury yields and ongoing concerns about economic policies and global issues.

Investors remain divided between desiring a robust economy to bolster corporate earnings and hoping for a weaker jobs market to justify Federal Reserve rate cuts. Market sentiments were further influenced by various factors including geopolitical tensions, comments from Federal Reserve officials, and a significant one-day drop in the Dow due to rising oil prices and inflation concerns. Overall, the week was marked by selling pressure and losses across major indexes, with the Dow leading the downturn.

Beneath the surface, Energy (+3.9%) experienced the biggest rally in the past two years due to rising oil prices, followed by Communications (+1.1%). Conversely, all other sectors lagged this week with the biggest declines in Healthcare (-3.1%), Real Estate (-2.9%), and Consumer Discretionary (-2.8%).


The US Economy Added 303,000 Jobs in March, Significantly More Than Expected

  • Nonfarm payrolls increased 303,000 for the month, well above the Dow Jones estimate for a rise of 200,000.
  • The unemployment rate edged lower to 3.8%, as expected, even though the labor force participation rate moved higher to 62.7%.

The key takeaway - In March, U.S. job growth significantly exceeded expectations with the addition of 303,000 jobs, indicating a robust and resilient labor market. This increase in employment came without accompanying inflation pressures, as wage growth was moderate at 4.1% year-over-year—the smallest gain since June 2021. The unemployment rate edged down to 3.8%, and the labor force participation rate increased, suggesting that the economy can sustain employment growth without necessarily fueling inflation.

Amidst these developments, Fed Chair Jerome Powell shifted his rhetoric, suggesting that strong hiring trends, supported by increased labor supply partly due to immigration, do not necessarily pose a risk of overheating the economy. Instead, the focus is turning more towards inflation metrics to guide future monetary policy decisions. CPI, which has remained above the Fed's 2% target, is particularly significant in this context. Meanwhile, economists and Fed officials are debating the timing and necessity of rate cuts, with some like Dallas Fed President Lorie Logan suggesting it's too soon to consider such moves given the current inflation risks. This cautious stance reflects broader economic trends where job openings remain high and sectors like private education, healthcare, and leisure are primary drivers of job creation, highlighting ongoing strength in these "high-touch" areas despite pandemic-related disruptions.


Fed Governor Bowman Says Additional Rate Hike Could be Needed if Inflation Stays High

  • Federal Reserve Governor Bowman said its possible that interest rates may have to move higher to control inflation, in a Friday address.
  • Should "progress on inflation stall, or even reverse," it is possible the U.S. central bank may have to raise interest rates further, Federal Reserve Governor Michelle Bowman said on Friday, deviating from the rate cuts her colleagues have called for.

The key takeaway - Federal Reserve Governor Michelle Bowman expressed caution about the potential need to raise interest rates to combat inflation, diverging from other Federal Reserve officials and market expectations that anticipate rate cuts. In her speech to the Shadow Open Market Committee in New York, Bowman highlighted the risks of easing monetary policy too hastily, which could lead to inflation rebounding and necessitate further rate hikes to maintain a 2% target. She stressed that while it may eventually be appropriate to lower rates, the current economic indicators and persistent inflation risks suggest that it is not yet time to do so.

Bowman, known for her hawkish stance on inflation since joining the Board of Governors in 2018, emphasized the unpredictability of inflation pressures, citing geopolitical tensions, fiscal policies, and ongoing high prices in housing and labor as complicating factors. She noted that recent improvements in supply-side dynamics might not continue to dampen inflationary pressures as they have in the past. With the Federal Reserve set to review the latest consumer price index data, Bowman and her colleagues remain focused on these inflation metrics to guide their monetary policy decisions, maintaining a cautious approach amid significant economic uncertainties and mixed views within the Fed regarding the timing and extent of future rate cuts.


March 2024 PMI Reaches 50.3%

  • The U.S. manufacturing sector expanded in March, as the Manufacturing PMI registered 50.3 percent, up 2.5 percentage points compared to February’s reading of 47.8 percent.
  • “This is first instance of expansion in 16 months. Two out of five subindexes that directly factor into the Manufacturing PMI® are in expansion territory, up from one in February.

The key takeaway - In March, the U.S. manufacturing sector showed signs of recovery, ending a 16-month period of contraction with the Manufacturing PMI registering at 50.3 percent, indicating expansion. This recovery was echoed in the latest S&P Global Sector PMI data, which showed that the majority of sectors (18 out of 21) experienced output growth, the highest in a year. However, the growth was uneven, with signs of weakness in manufacturing sectors and fewer sectors reporting increased new work. Financials, particularly Insurance, led the growth with robust activity, while sectors like Metals & Mining, Automobiles & Auto Parts, and Construction Materials saw only marginal declines.

Job cuts were noted in about half of the sectors, with manufacturing sectors particularly affected, although the reduction in employment was generally modest. Demand remained weak in goods-producing sectors, while price pressures were pronounced in service sectors such as Insurance and Tourism & Recreation, which faced the highest cost of inflation. Overall, the manufacturing and broader industrial sectors are showing signs of a tentative but positive shift in output and employment trends as they enter the second quarter of 2024.


From Around the Watercooler

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Samsung Doubles Down on Texas as US Chip Center