April 1, 2022

Weekly Market Commentary March 28th to April 1st 2022

Unemployment in the U.S. dropped to a new post pandemic lockdown low of 3.6%. The March payrolls report showed an increase of 431k jobs. This is the 11th consecutive month of new jobs reported above 400k, a remarkable run of growth not seen since 1939. Labor Force Participation ticked up modestly to 62.3%. It will however take more willingness on the part of workers to reenter the workforce to meet the demand for unfilled jobs, which stands at a near-record high level of 11.26 million.

The third and final estimate of Q4 GDP remained robust at 7.1% annualized. Personal Consumption pulled back modestly to 2.5% in the latest estimate of economic growth. Spending on services (higher by 3.3%) outpaced goods (+1.1%) and solid inventory build contributed to the strong results.

Personal Consumption Expenditures (PCE), the Fed’s key measure of inflation, grew by a modest 0.2% in February. On a year-on-year basis, this measure of inflation remains well above historical norms at 6.4% and 5.4% for the Core reading (excluding food and energy.)

The latest ISM Manufacturing Index was reported at 57.1, below consensus estimates and the prior month reading. Rising input prices, ongoing supply disruptions and a slowdown in demand were all factors in the modest pullback. The ongoing war in Ukraine and increased pandemic lockdowns in China throughout March were notable headwinds to ongoing supply constraints.

The S&P 500 gave back gains earned early in the week, closing back roughly where it started, up 0.1% for the week to 4,545. The Nasdaq took a similar path finishing higher by 0.7%.

The yield on the 10 Year U.S. Treasury yield (2.39%) dropped slightly below the 2-Year (2.47%), leading to a yield curve inversion of the closely watched “belly” of the curve known as the 2-10 spread. This has historically been a cautionary signal and makes the Monetary Policy tight rope the Fed must walk to restrain high levels of inflation without creating an economic recession that much more challenging.

Key economic releases next week include Factory Orders, ISM Services Index and a release of the latest FOMC minutes.

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