S&P 500: -0.10% DOW: -0.63% NASDAQ: -1.10% 10-YR: 3.29%
Last Week on WallStreet - April 8th, 2023
Despite a gain in Thursday's session, the S&P 500 ended the short week on Wall Street in the red for the first time in four weeks. The bulls and bears were in a tug of war over the markets, resulting in heightened volatility but no substantial momentum in either direction. The OPEC+ decision, announced Sunday, injected further uncertainty into stocks, exacerbating an already opaque picture of future inflation and economic conditions. While employment data from early in the week and ISM figures suggest a cooling economy, investors are now concerned that the Federal Reserve may have gone too far, potentially leading to a freezing rather than cooling of the economy. With Friday's employment report yet to be fully processed by investors, the strong but cooling data could reinforce the market sentiment of a slowing economy.
Beneath the surface, defensive sectors took the lead in a distinct rotation from the technology led run of the past few weeks. Healthcare (3.1%) and Utilities (3.1%) posted the largest gains. The cyclical areas of the market were hit hardest with Industrials (-3.4%) and Discretionary (-3.1%) lagging the most.
Job Growth Totals 236,000 in March, Near Expectations as Hiring Pace Slows
- Hiring in the US gradually cooled in March as the economy added 236,000 workers in line with expectations
- The unemployment rate ticked down to 3.5% from 3.6% in February
- Steady job gains at service-related businesses are helping counter layoffs in industries such as technology and finance
- Along with the payroll gains came a 0.3% increase in average hourly earnings, pushing the 12-month increase to 4.2%, the lowest level since June 2021
The key takeaway - The employment report for march adds to other data that suggest the labor market might finally be experiencing some slowing. While gains are still strong and the unemployment rate remains near historic lows, the intense momentum of tightening has moderated. Additionally, other job-related data released this week shows an increase in layoffs, a higher number of jobless claims, and slower payroll growth. This news is welcomed by the Federal Reserve, which has been trying to cool down the red-hot jobs market to ease the impact of wage-price dynamics on inflation.
OPEC+ Announces Surprise Oil Output Cuts
- Saudi Arabia and other OPEC+ oil producers on Sunday announced further oil output cuts of around 1.16 million barrels per day
- The pledges bring the total volume of cuts by OPEC+, which groups the Organization of the Petroleum Exporting Countries with Russia and other allies, to 3.66 million bpd
- The voluntary cuts start in May and last until the end of the year
- The cut adds to last October’s decision to
reduce output by 2 million bpd through the end of the year to tighten supply
The key takeaway - After witnessing oil prices steadily fall over the past few months, OPEC+ to definitive action to support prices in this surprise production cut decision. So far, the action seems to have had the desired effect as brent crude rose almost 7% as of this writing. How these higher prices will impact demand, inflation, and economic activity is a big question not only for investors but also for the Federal Reserve. Oil prices falling has been a solid contributor to the easing seen in overall inflation and this increase in cost for energy could lead to more stubborn inflation readings.
US Service Sector Slows in March; Inflation Cooling - ISM Survey
- Manufacturing PMI at 46.3 in March versus 47.7 in February; slumping to its lowest level in almost 3 years
- Services PMI falls to 51.2 in March from 55.1 in February; cooling significantly more than economists expected
- New orders, an indication of demand from consumers and businesses, fell across both areas of the economy
- On the bright side, the prices paid gauge declined for both sectors fell in March
The key takeaway - The data from March’s ISM Manufacturing and Services Indexes illustrates an economy that is losing steam. The manufacturing sector has been contracting for months according to this survey and showed an even greater degree of slowing last month. The services side, which makes up most of the economy and has been resilient as of late, still showed slight growth but slowed sharply. It’s possible we are seeing the lagging effects of the Federal Reserve’s tightening in monetary policy over the last year weigh on the economy and slow growth.
From the Waterloo Watercooler
House Speaker Kevin McCarthy met with Taiwan’s President despite China’s strong objections
FedEx will combine its ground and express delivery networks in an effort to cut $4 billion in costs
Johnson & Johnson offered $8.9 billion to settle lawsuits that their talc-based powder gave plaintiffs cancer
UBS may cut its workforce by 20%–30% (as many as 36,000 employees) following its emergency takeover of Credit Suisse