New York (CNN) There has been a dramatic shift in investor perspective. Bad news is no longer good news.
Over the past year, Wall Street has been hoping for cool monthly economic data to prompt a suspension of the Federal Reserve. Aggressive pace of rate hikes to keep inflation in check.
But at that March meeting — just days later series of bank failures Expressed Concerns About Economic Stability — Central Bank signaled It plans to pause rate hikes later this year. With the end of rate hikes in sight, investors stopped trying to speculate on the Fed’s next move and instead turned to the health of the economy.
This means Where once a softening economic data signaled good news that the Fed might stop raising rates, now a weaker economic data simply means the economy is weakening. Investors are therefore worried that the slowing economy could slip into recession.
what happened last week After a slew of economic reports showed the red-hot labor market was finally cooling down (more on this later), markets teetered and warning lights flashed across Wall Street.
Investors have responded by dumping the high-growth large-cap stocks that have surged recently and flooded into defensive stocks in industries such as healthcare and consumer staples.
Tech stocks recovered somewhat by the end of the short trading week — markets were closed to celebrate Good Friday — but the Nasdaq Composite was still down 1.1%. The Dow Jones Industrial Average rose 0.6%.
What does this mean for the market? With Wall Street in “bad news is bad news, good news is good news” mode, we’re looking for signs that the economy remains resilient.
What hasn’t changed is that investors still want to see inflation fall.Central banks have hinted at moratorium on rate hikes this year, but action so far has been Only moderately stable prices. The Federal Reserve’s favorite measure of inflation, the Personal Consumption Expenditure Price Index, rose 5% in the 12 months to February, well above the 2% inflation target.
Moreover, Wall Street may be overly optimistic about how the Fed will behave going forward. Some investors expect the central bank to cut rates several times this year. Low interest rates in 2023.
It is unclear how the market will react if the Fed does not cut rates this year. But George Cipoloni, portfolio manager at Penn Mutual Asset Management, said a notable uptick is unlikely unless the central bank turns around, or at least shows plans to do so soon. rice field.
“It keeps that boiling point and that temperature a little bit higher,” he added, adding that hawkish comments and comments revealing that inflation fears could hurt the market.
what’s next? The Fed will hold its next meeting in early May. Before that, we need to parse through some economic reports to understand how the economy is and what we can do about it. The market now expects the Federal Reserve to raise interest rates by a quarter of a percentage point. To CME FedWatch Tool.
Is the labor market cooling?
The labor market appears to be cooling somewhat, at least according to a slew of data released last week. But it’s too early to think that the job market has lost its strength.
In a statement on Friday, President Joe Biden said the March data were “a report of good jobs for hard-working Americans.”
The March jobs report revealed that US employers added lower-than-expected hiring. 236,000 jobs last month. According to Refinitiv, economists had expected a net increase of 239,000 jobs in a month.
The unemployment rate has fallen to 3.5%, according to the Bureau of Labor Statistics.It has fallen short of expectations to remain stable 3.6%.
Employment data also fell short of expectations for the first time in 12 months.
But that doesn’t mean the job market is no longer strong.
“The labor market is showing signs of cooling, but remains very tight,” Bank of America researchers wrote in a report on Friday.
Still, other data released last week confirm that cracks are beginning to form in the labor market. February recruitment/turnover rate survey clearly Last week, the number of available jobs in the United States plunged to its lowest level since May 2021. The ADP’s private sector salary report was far below expectations.
What this means for the Fed is that the cooldown on the latest jobs report will likely not be enough for the central bank to suspend interest rates at its next meeting.
“The Fed will likely hike rates in May as the labor market continues to buck the cumulative effects of rate hikes that began more than a year ago,” said Quincy Crosby, chief global strategist at LPL Financial. said.
next
Monday: wholesale inventory.
Tuesday: NFIB Small Business Optimism Index.earnings from Carmax (KMX), albertsons (ACI) and First Republic Bank (FRC).
Wednesday: Consumer Price Index and FOMC meeting minutes.
Thursday: OPEC Monthly Report and Producer Price Index.earnings from delta airlines (dal).
Friday: Retail Sales and University of Michigan Consumer Sentiment Survey.earnings from JP Morgan Chase (JPM), wells fargo (WFC), black rock (black), city group (C) and PNC Financial Services (PNC).
