April 7, 2023

Weekly Market Commentary April 3rd to April 7th 2023

Despite a holiday-shortened trading week, economic releases were plentiful. The highlights included the Non-Farm Payrolls report, Jolts Job Openings, ISM Manufacturing and Services. Labor market releases confirmed easing demand for employees but an overall healthy environment for workers as the economy continues to add jobs. The economy’s resiliency opens the door for another 25 basis point hike in May.

Total Non-Farm Payroll employment rose by 236k in March, while the unemployment rate was a tick lower at 3.5%. The labor force participation rate increased 0.1% to 62.6%, its highest level since the before the pandemic. Another welcomed sign for the Federal Reserve was the slowdown in wages. Year-over-year wage growth fell from 4.6% to 4.2%, signaling that some labor market pressures are abating. Earlier in the week, the ADP jobs report showed a similar picture in the labor market with only 145k hirings in the private sector, which fell from 261k the month prior.

On the last day of February employers advertised 9.9 million job openings, well below the 10.8 million that was expected and the first print below 10 million since May 2021. After a historic run where openings have outpaced expectations in 27 of the last 29 months, the JOLTS survey posted its 3rd biggest miss on record. Despite job openings falling in the month there are still 1.7 jobs open for every unemployed worker in February.

Although still in expansionary territory, ISM Services cooled rapidly in March. The index fell from 55.1 to 51.2, more than three points below the 54.4 consensus estimate as new orders and prices paid fell. Both categories fell to their lowest level since May 2020 and December 2020, respectively. ISM manufacturing has shown broad based declines as all five sub-indices are under 50 for the first time since the financial crisis 15 years ago.

In the fixed income markets, the 3-month to 10-year treasury inversion reached its highest on record at -1.61% but has since fallen to -1.36%. This week, the 10-year Treasury fell 8 basis points to 3.39% reaching its lowest level since September of last year. The market is now pricing in a 70% chance of a rate hike in May after Non-Farm Payrolls exceeded expectations.

Equity markets suffered its first decline in four weeks as the S&P 500 and Nasdaq composite fell modestly. All indices moved less than 1% during the week as the Dow Jones finished at 33,485, the S&P 500 finished at 4,105 and the Nasdaq closed at 12,088. Volatility has been suppressed in the first quarter of the year with the VIX hovering around 18.

Next week’s releases include CPI- Consumer Price Index, PPI- Producer Price Index and Retail Sales.

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