Stocks rose last Thursday as investors took a big breath ahead of a long weekend… a well-deserved long weekend. Friday’s employment situation number shows that new hiring slowed last month.
Risen… by a bit. There is an old Wall Street saying that goes: “the market is always right.” The idea there is that, despite what may be going on in the street in front of the iconic New York Stock Exchange, it is all about what is happening inside the exchange that will determine what happens to your wallet. And, in case you are wondering, that is very much correct. Despite all your best intentions and painstaking research, a stock can only succeed if the market allows it to. But here is some subtext for you. The market can be wrong! Worse, when it realizes that it’s wrong it corrects itself rather quickly… which can be painful if you are on the wrong team.
All that being said, when it comes to interest rates, it seems that both teams, “Team Market,” and “Team Fed” have set up on both sides of the field. “Team Market” is expecting the potential for a mild economic hiccup to emerge and interest rates to fall into the close of the year. Lower interest rates and the potential for the benevolent Fed to return is helping to levitate stocks. “Team Fed,” you know, the people who actually control interest rates, is taking the polar opposite view. In its projections and its members’ chatter, the Bank is going to continue to raise rates and hold them steady until sometime next year. That would certainly hang over a continued rally in equities. The lines have been drawn between the two sides and the game is on. Now, we simply have to watch it play out as economic numbers bubble in. The big ones to watch are the employment figures and, of course, the inflation figures.
Last Friday, with equity markets closed, the Bureau of Labor Statistics delivered its closely watched, monthly employment figures which showed a slowdown in new NonFarm Payrolls, though the number is still healthy by historical standards. Further, the Unemployment Rate ticked slightly lower in March, according to the release. According to the Fed, strong employment continues to spur inflation causing wages to rise. While the monthly numbers are almost always market movers, they tend to lag somewhat, so the weekly releases are ones getting most of the airtime lately, and rightly so. Those numbers come out each Thursday, and last week’s number showed that new unemployment claims remained slightly elevated continuing the trend upward. In this case upward means more job losses on a weekly basis, which should ultimately show up in the monthly numbers. Clearly if the trend continues, “Team Market” may put some points up on the scoreboard.
However, there is still that pesky inflation that caused all this fuss in the first place. And on that note, we will hear from the Bureau of Labor Statistics this week when the agency releases its Consumer Price Index / CPI and its Producer Price Index / PPI. Those have been trending lower and economists are expecting them to drift lower yet. The services component remains the holdout and traders will be closely watching those. Mid-week, we will also get a glimpse what the FOMC discussed in its late-March meeting. While the focus is typically on the path of rates, traders will be looking for any discussion around the magnitude of the recent bank sector gaffe, trying to find new clues. Speaking of banks, JP Morgan will fire the starting gun for Q2 earnings season on Friday. Banks, being top of mind and the first sector to release earnings, will very much set the market tone for, at least, a bit. We still have a few weeks before big tech takes center stage, and investors will certainly want to hear what they say given the groups recent market success… and its being the most prolific announcers of job cuts. For now, let’s call the battle between “Team Market” and “Team Fed” extremely close. We are not even at halftime, but the action is about to heat up.
WHAT’S SHAKIN’ THIS MORNIN’
Capital One Financial Corp (COF) shares are lower by -4.09% in the premarket after Walmart sued the company in an attempt to end a credit card partnership with Capital One. In recent weeks, 36% of analysts have changed their price targets, 0 up, 8 down, and 14 unchanged. The company is set to release earnings later this month. Dividend yield: 2.52%. Potential average analyst target upside: +21.7%.
Pioneer Natural Resources Co (PXD) shares are higher by +8.09% in the premarket after the Wall Street Journal reported that ExxonMobil held preliminary merger talks with the company. Compared to its small direct peer group, Pioneer trades at a higher forward PE ratio, which implies that the company may be expensive, but it does not mean that the stock will not continue to climb. Dividend yield: 10.72%. Potential average analyst target upside: +23.4%.
LAST THURSDAY’S MARKETS
Stocks traded higher last Thursday ahead of the extended weekend which included monthly employment numbers. The S&P500 climbed by +0.36%, the Dow Jones Industrial Average rose by +0.01%, the Nasdaq Composite Index traded higher by +0.76%, and the Russell 2000 Index added +0.13%. Bonds slipped and 10-year Treasury Note yields gained +9 basis points between Thursday and Friday to 3.39% (bonds had a half-day session on Friday). Cryptos fell by -1.41 and Bitcoin slipped by -0.95%.
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