The state of the US economy

Employment growth in the United States jumped in April with the creation of 263,000 new jobs. It was well above expectations and could provide more evidence that the US economy is running at full speed. It seems that the data could benefit from the data after two days of fighting the Fed.

With the acceleration of employment growth, the rate fell to 3.6%, its lowest level in 50 years. We must go back to December 1969, at the time of the second lunar landing, to see unemployment at levels such as this one. At the same time, wages rose 3.2%, as in the previous month and the ninth consecutive month, with wage growth of 3% or more.

Equities, which had already climbed into trading before the markets opened on Friday, seemed to gain further momentum, and remained in the green after two consecutive days of weakness following the Fed meeting and higher inflation. high. Analysts were expecting job growth of nearly 200,000. Friday's number was up from the revised 189,000 in March, putting the weak February data back in the mirror.

Minor road bumps

If you want to find signs of sweetness, there was a couple. was stable for the third consecutive month and declined slightly compared to March. But these considerations were relatively minor in a report which undoubtedly showed a real economic dynamism.

Employment growth in construction, which had been weak earlier this year and caused some concern, registered a solid gain of 33,000 in April. Most of these gains from non-residential activity may reflect obvious signs of business investment, which was declining.

The business and professional services sector continued to shine, creating 76,000 jobs in April. Health care was another big contributor. At the same time, some traditionally lower paid businesses, such as retail, leisure and hospitality, did not contribute much to the April growth. Although these jobs are perfectly respectable, they tend not to be the kind of people you can build around a well-paid career.

Speaking of high pay, the wage growth figure was in the wheelhouse of the market – neither too high nor too low. Some investors said in the report that they feared that strong wage increases would put more pressure on the Fed to tighten rates, but these data do not show a sharp rise from previous months. At the same time, wages have risen 3% or more from one year to the next for nine consecutive months, which is perhaps a sign that workers are finally seeing solid and reliable gains. This could help strengthen consumer demand.

A possible sign that the report did not raise inflation fears, the United States fell slightly in the minutes following the data, reaching 2.54%. This represents a decline of 2.68% at the beginning of the year and more than 3% at the end of 2018. The fall in yields tends to reflect a market less concerned about price pressure.

Powell Ball

Before the payroll was captured by the announcement cycle, Thursday's stock market pressure was marked by the persistence of equities, as investors continued to digest comments from Fed Chairman Jerome Powell. As a reminder, Powell said they were well placed and they were alluding to weak. This seemed to disappoint some investors who could have hoped for more stimulus in the near future.

In addition to not approving an immediate case of rate cuts, Powell described the word "transient" as low inflation. The market did not seem to know what to do with it. He used the word "transient" a few times and in different ways. A "transitory" language could mean less chance of a rate cut.

When stocks have lost ground, volatility has increased. – considered as the index of fear of the market – went from less than 13 years at the beginning of the week to more than 16 Thursday. We have not talked a lot about volatility lately, partly because it has not been a factor. Thursday's VIX action could remind investors how nervous this market is.

In the run-up to the Fed meeting, few are expecting to see a significant effect, one way or the other. had virtually no chance of a rate change. The reaction to Powell's comments, which is probably more "real" than actual information, could be a lesson for investors who do not feel comfortable.

Powell may end up being right about inflation, but on the other hand, the numbers do not tell us what the price increase is. For example, the declines recorded Thursday in the United States fell to about 3% Thursday, while the United States have grown this week while many data Monday and Tuesday were below expectations. If you had said a week ago to monitor inflation, it might have worried investors more. Not so much, maybe, after all that.

This does not mean that prices can not rise and Powell's remarks may have given a boost to Friday's NFP. The question might be how federal fund futures deal with this weekend data. The futures market ended Thursday with still almost 50% chance of a rate cut by the end of the year. Wages from now on could fit into the futures rate ratings.

The bullish argument of inflation

In addition, it can be said that what Powell said does not seem too bearish in the long run. No need immediately to lower rates could mean that he thinks the economy is doing well without a new set of drive wheels, and its inflation-boosting forecasts could also reinforce the hope of improved economic parameters. After all, high prices often translate into improved demand.

After a decade of sluggish price growth that has reduced corporate margins, many companies could welcome modest price inflation. However, we feel that the investment community does not fully trust the Fed to find a cure for low inflation. Inflation has consistently moved below the Fed's stated target of 2% in recent years.

To come back to that, he seemed to really start when he hit 14.5, and galloped around 17h. It was a quick upward movement, and one of the most interesting moves of the day. Nevertheless, VIX ended up making most of those gains at the end of the session on Thursday while on the eve of the closing on Friday it was 12.96.

Another interesting move took place Thursday in Info Tech stocks, where semiconductor names withstood the bearish trend of the day. Advanced micro systems (NASDAQ 🙂 led the way with more than 5% gains after the release of its report earlier this week, and it looks like AMD has probably brought back some of the other chip companies. Meanwhile, Treasury yields continued to rise after Powell's somewhat hawkish stance.

In addition to Friday's jobs report, many Fed officials were interviewed throughout the day. We will see how the markets will interpret their words during the week ahead. In addition, the month of April was below expectations as the week-end was below analysts' expectations. were strong in March.

In the news of the company, You're here (NASDAQ 🙂 rose 4.5% on Friday after a 4.3% rise on Thursday as the company announced plans to raise $ 2 billion through new equity and convertible notes. This stock was hammered most of the year. It might be interesting to see if this evolution gives it momentum.

FIGURE 1: CHANGE OF FORTUNE: The 10-year Treasury yield (in candlestick) has declined over the past week until Wednesday, when he found some strength in the words of Fed Chairman, M Powell. The S & P 500 (purple line) rose, but fell after Powell's speech. Data sources: Cboe, S & P Jones indices. Cartographic Source: TD Ameritrade thinkorswim® platform. For illustration purposes only. Past performance does not guarantee future results.

Finance in mind: Financials increased slightly in the last month after underperforming other sectors earlier this year. This comes despite the mixed results of some of the big banks and lower mortgage rates, which can sometimes weigh on profits. In fact, over the past month, financial services performed best and easily outperformed the S & P 500 Index (SPX). There are several reasons, with the exception of the obvious reason why the Fed said this week that it is not ready to cut interest rates. One of the factors could be better news in the housing market, as new home sales have increased in the most recent report.

Higher numbers and lower mortgage rates could help smaller, more retail-dependent regional banks, while big banks could benefit from strong economic conditions and investors' re-entry into the market after the slide difficult last fall. Another factor could be a recent widening of the yield curve after its reversal at the end of March. It's worth keeping in mind what a CEO told CNBC on Thursday: He said consumers were confident but did not spend on more expensive items like cars and major appliances. Any sign of improving these parameters would probably bode well for banks.

Estimation of income back in the green: After months of declining analysts' earnings estimates for the S & P 500 companies in the first quarter, investors could be encouraged to see them start rising now that the earnings season is close to a month away. Some analysts still expect a decline from the first quarter of the previous year, but others, including the S & P Capital IQ, are now expecting a slight gain after all. The company now expects earnings to rise 0.9% in the first quarter, but a 0.2% decline in second quarter earnings, down from its initial estimate of 0.7%. According to S & P Capital, earnings for the S & P 500 are expected to increase by 2.6% for the full year, well below the 22.9% recorded in 2018. According to S & P Capital, The top performing sectors this quarter could be Consensus IQ Health Services, Industries and Communications Services, with Energy and Materials at the back.

From Powell files: After seemingly frightening the stock market a few times in 2018 with his remarks, Fed Chairman Jerome Powell had a long time at the beginning of this year when he often seemed to appease investors. This came to a close on Wednesday, it seems, when he did not agree with the need to lower rates in the near term and hoped that low inflation would remain transient. The losses on Wednesday and Thursday were largely attributed to Powell's remarks. Looking at how things unfolded after Powell's speech, one wonders if people have become so analytical about every word that he says that it's impossible to do his job. Many investors applauded when Powell's predecessor, Janet Yellen, began the push for more transparency in the Fed's decision-making process. Powell continued this tradition by adding press conferences after the meeting at each meeting instead of four per year. But maybe we are at a point where we do not necessarily need to see every part of the sausage produced.

Good business