Markets
The offset in average hourly wages, which was in line with forecasts, prevented cross-asset investors from suffering another meltdown despite a home run headline NFP reading. This was made possible by Friday’s spike in equities. ADP’s “pay insights” data earlier in the week showed double-digit wage rise for job-switchers, which alarmed the Fed with possible wage-price spiral dynamics. The 4.1% year-over-year average hourly earnings print, however, was in line with forecasts.
Despite the relief bounce on Friday, the market’s consistent positive momentum hit a roadblock last week due to an unanticipated spike in volatility.
A number of factors are weighing heavily on traders, such as central bank policies, first-quarter earnings reports, geopolitical tensions, and the impending US presidential election. If the Fed postpones the first rate cut, the market appears content as long as the economy continues to grow and cuts finally take place. Traders, however, became cautious after Fed Governor Neel Kashkari said that there could not be any rate reductions in 2024. Due to these changes, dealers now have to deal with a very unpredictable market.
The key question is whether the Federal Reserve is reaching a tipping point in its tolerance for strong economic data and sticky inflation after warmer-than-expected inflation prints in January and February and yet another explosive NFP.
The focus remains on this week’s March Producer Price Index (PPI) and Consumer Price Index (CPI) figures as we move into earnings season. These reports have the potential to significantly impact the Federal Reserve’s reaction function.
US CPI numbers have become crucial events for risk markets in recent months. There may be enough opportunity for the currency to go higher and stocks to correct lower on hottish prints since it will be harder for people expecting a rate cut in June to ignore another high print after the unexpected spike in US inflation in January and February.
Aside than possibly further waiting, the most recent Nonfarm Payroll (NFP) data didn’t provide clear signals for the Fed. However, it’s crucial to remember that rate reductions are not the result of these kinds of outrageous reports.
In conclusion, the trend seen so far this year has been a revival in job growth, even though the Fed has been keeping an eye out for indications of slowing labor market demand and rebalancing as a result of tighter monetary policy.
Earning season
It’s earnings season again! Are you prepared to examine the figures?
You’re not the only one who isn’t exactly bursting with happiness. Earnings season is merely a diversion for a macro trader. But really, who can avoid getting giddy from watching how businesses wrangled higher-than-expected profits over the previous quarter? It resembles a high-stakes game in which everyone can win and everyone is vying for the top spot.
Corporate America excelled last quarter, as seen by the healthy 8% gain in aggregate earnings per share (EPS). That’s over twice as fast as bottom-up company analysts had anticipated.
The consensus estimate for Q1 earnings is a 3% increase in total EPS. It’s important to remember that the pre-season bar is at its highest point in almost two years, even though this would represent a deceleration from the pace saw in Q4.
Nevertheless, the goal is the same every quarter, particularly for the mega-cap firms that power the index, with very few unsettling news in 2022. These massive corporations generally meet or beyond expectations in terms of their financial performance. They now constitute a sizable percentage of daily life and are essential to the daily operations of businesses and customers everywhere. Although there could be sporadic downturns in performance, relatively few quarters can be categorically labeled as subpar. Rather than being solely based on absolute balance sheet deficiencies, the notion of a “bad” quarter sometimes depends on relative or subjective metrics.
Still, the recent surge in the stock market has been unusual, and investors need to adjust and change their plans accordingly. The current climate presents a very different scenario than the one that drove last year’s rise, which was fueled by expectations of several rate reduction and lower yields from the Federal Reserve. Stock prices are still hovering at all-time highs, even with expectations for rate cuts beginning to materialize and conversations centered around the prospect of no cuts.