Apple can still wow an audience

Stocks fell yesterday led by regional banks, many of them targeted for selling by simply being… regional banks. Traders turned their sights on this morning’s important employment figure and beyond that next week’s inflation numbers.

On the job. Employment data is always important no matter what the market or the economy is up to. You need wages to buy stuff, I hope you would agree. Buying stuff is, after all what drives at least 2/3 of the US economy. It stands to logic, therefore, that when employment is strong, that we can expect the economy to be healthy. There are some side effects, however. One of which is price pressure driven by strong demand by consumers with pockets full of cash and plastic. Now, I know that I am greatly simplifying this most important tenets of not only microeconomics, but macroeconomics as well, buy I am sure you get the picture. The Fed has been acutely focused on this, and they have said as much… many, many, multitudes of times. I am going to compress at least 2 years of economics lectures into 2 sentences. The Fed’s thought process is rooted in something called the Phillips Curve which shows the inverse relationship between the unemployment rate and wage inflation, which means if unemployment goes up wage inflation (and goods inflation) goes down, and vice versa. If we have low unemployment (which we have right now), William Phillip’s curve tells us that we will have high inflation (which… we also have now), so the Fed applies the Taylor Rule, which suggests that by manipulating the Fed Funds rate, the Fed can affect yours and my real income causing it to go down as the rate goes up, so that we spend less money and reduce inflation. That is your 2 sentences. Raise rates and cause us to spend less money and cause companies to lay off workers so that… well, we will also, spend less money.  That’s it… have a nice weekend.

You know that I couldn’t just stop there. I just wanted to demonstrate, as simply as possible, why the labor market is so important to the Fed. We get weekly numbers, which I report here, that show us new unemployment claims from the prior week. Those timely numbers can give us some clues on the health of the labor market. Remember, the Fed wants to see those numbers go up and lead to higher unemployment. Remember the Phillips Curve from the last paragraph? The good news, if you could call it that, is that the weekly numbers have been going up slowly. However, they haven’t really had a big impact on the unemployment rate yet. That is because while many companies have been laying off employees, still more are hiring them. We can see this in the JOLTS Job Openings number which showed that there were still 9.59 million job vacancies in March (the latest release). Professional/Business Services and Health Care/ Social Assistance top the list with 1.717 million and 1.619 million respectively. Earlier in the week, ADP announced in its private Employment Change number that 296k jobs were added last month, which is not only high, but it beat the 150k expected by economists. That number showed losses in Manufacturing, Financial Activities, and Professional/Business Services. The biggest gains were in the Northeast and largest losses in the Southern region. The report also relayed that the most hiring came from small firms with 20-49 employees.

Today, we will get the closely watched Bureau of Labor Statistics Nonfarm Payrolls and Unemployment figures. The Fed made it clear that it was “data dependent” in this is the “data” they will be watching. You know this because you were paying attention in paragraph 1 ‍. The Unemployment Rate is expected to tick up to a still-quite-low 3.6% while new Nonfarm Payrolls is expected to have dropped to 185k from 236k. Great deviations in any direction from that are likely to catch the eye of policymakers… and traders who believe that the Fed will be cutting rates later this year. Who ever said that economics was boring?

WHAT’S SHAKIN’ THIS MORNIN’ ☀

Expedia Group Inc (EXPE) shares are higher by +5.64% after it announced a greater than expected loss last quarter but told investors that travel demand grew in the quarter. In the past month, 40% of analysts have changed their price targets, 1 up, 10 down, 15 unchanged, and 1 dropped. Potential average analyst target upside: +43.5%.

Apple Inc (AAPL) shares are higher by +2.69% in the premarket after it announced that it beat EPS and Revenue estimates by +6.11% and +2.41% respectively. The company attributes the solid performance to a rebound in iPhone sales. The company also raised its stock buybacks and its dividend… investors like that. Dividend yield: 0.57%. Potential average analyst target upside: +8.0%.

YESTERDAY’S MARKETS

Stocks traded lower yesterday after slipping banks set a dreary tone. The S&P500 fell by -0.72%, the Dow Jones Industrial Average declined by -0.86%, the Nasdaq Composite Index traded lower by -0.49%, and the Russell 2000 Index dropped by -1.18%. Bonds declined and 10-year Treasury Note yields gained +4 basis points to 3.37%. Cryptos gained and Bitcoin climbed by +1.24%.

NEXT UP

• Change in Nonfarm Payrolls (April) is expected to come in at 185k, lower than last month’s 236k.
• Unemployment Rate (April) may have increased to 3.6% from 3.5%.
• This weekend: Berkshire Hathaway will announce earnings.
• Next week: More earnings along with Consumer Price Index / CPI, Producer Price Index / PPI, and University of Michigan Sentiment. Check in on Monday for calendars, details, and enough charts to keep you busy while you take in your morning toast and tea.