Strong Employment Drives Weak Markets

Strong Employment Drives Weak Markets

The second quarter got off to a rocky start, and it was broadly brought on by good economic news. A hot jobs report paired with strong manufacturing fanned more hawkish-than-expected Fed Speak, as policy makers focused on their ability to be patient with interest rates. The Fed has the balancing act of keeping prices stable while maintaining full employment. Sticky inflation continues to be the factor driving policy, as employment remains resilient. With the good news of strong employment, markets reacted to the potential of later or slower rate cuts. The winners for last week were precious metals and oil, assets typically thought of as havens from inflation.

This week brings a strong slate of economic reports that will paint a better picture of where Q1 ended. We believe of particular note to markets this week is the March CPI data release Wednesday and March PPI following on Thursday. These prints in particular should help clarify the inflation narrative after the employment data last week. By combining employment data and inflation data, we hope to gain clarity on the Federal Reserve’s actions.

Weekly Performance

Data Source: Factset®        Performance Period:      4/1/2024    4/5/2024

Q2 started off on Monday with ISM manufacturing data1 that took a positive surprise at 50.3 versus the 48.5 expected. The report is based on a survey of executives, and a print over 50 indicates a generally expansionary state in manufacturing. Friday ended the week with hourly earnings2, average workweek1, and nonfarm payrolls1. The hourly earnings data met expectations for 0.30% monthly growth, a 0.1% rise from February and was paired with a slight increase of the average workweek to 34.4 hours from 34.3 hours. Both prints indicate demand pressure from consumers that could pass through to continued inflation. In nonfarm payrolls, we saw a sharp jump to 303.0k, 98k over expectations. This stoked concern that the strength of the labor market could be cause for the Fed to delay rate cuts, as inflationary pressure continues. Also of note, consumer credit1 fell below expectations to $14.1B from the $20B expected. Tightening credit, of course, could curtail consumer spending.

As we sail into Q2, inflation will be on our minds. We believe there is an opportunity for markets to overreact to the individual prints, so remaining at the helm to stay “data driven” and market focused is essential. While we direct a little more focus on inflation, its effect on markets and the economic measurables, it should serve as a reminder to focus inward on the fruits of the spirit that are our internal measure. We are reminded of this by Jeremiah 17:10: “I the Lord search the heart and test the mind, to give every man according to his ways, according to the fruit of his deeds.”

1. Seasonally Adjusted Annualized Rate 2. Seasonally Adjusted Annualized Rate, Month over Month
Sources: Yahoo Finance,, and JP Morgan Market Insights

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