Stocks Jump as Payrolls Report Keeps Fed On Track
2:52 pm Friday, April 01st, 2022
U.S. stocks rose modestly to kick off the second quarter on Friday, as the monthly jobs report indicated a strong labor market and is likely to keep the Federal Reserve on track to maintain its hawkish policy stance. The Labor Department’s employment report showed a rapid hiring pace by employers while wages continued to climb, although not enough to keep pace with inflation.
Briefly, nonfarm and private sector payrolls both increased by more than 400,000 in March after increasing more than 700,000 in February, the unemployment rate improved to 3.6% (consensus 3.7%), and average hourly earnings rose 0.4% as expected.
This combination of decent jobs growth, a lower unemployment rate, and wage inflation has strengthened the market’s expectations for the Fed to hike rates by 50 basis points next month. The fed-funds-sensitive 2-yr yield is up 15 basis points to 2.44%, rising past the 10-yr yield, which is up six basis points to 2.38%.
This is the widest inversion of the 2s10s spread this economic cycle and has worked against the financials sector (-0.6%) due to profitability concerns. The information technology (-1.0%) and industrials (-1.2%) sectors are the weakest performers, though, while the real estate (+1.2%) and energy (+0.5%) sectors are outperforming.
The tech sector is facing valuation-oriented headwinds with the increase in the 10-yr yield, but it’s also worth mentioning that Apple (AAPL) was removed from the Analyst Focus List at JP Morgan, citing a “reversal of the Value over Growth momentum.”
Transportation stocks are noticeably weak, supposedly because the employment report showed a decrease in transportation jobs (-1,000) following large gains in the prior two months. The Dow Jones Transportation Average is currently down 5.9%.
For some perspective, the S&P 500 rallied 11.0% between March 14 and March 29. In the last three sessions, it’s down 2.6% in a trade resembling consolidation and profit-taking activity. While the 2s10s inversion is typically viewed as a recession indicator, the market has a track record of rallying in the months/years after the inversion and before the recession (which may not even happen).
Separately, IEA nations such as Europe, Canada, Mexico, Japan, and South Korea will join the U.S. in releasing oil from their reserves, according to The Wall Street Journal. WTI crude futures are currently down 1.1% to $99.16/bbl.
