by Bryan Perry

April 9, 2024

An interesting development occurred late last week when the employment data was released, showing the economy added 303,000 non-farm jobs to payrolls, a full 50% more than had been forecast. Non-farm private payrolls increased 232,000, also considerably higher than the 160,000 estimate, which followed the ADP employment report for March, which showed an increase of 184,000 private payroll jobs – also well above the 150,000 forecasted. Without question, it was a good week for the U.S. labor market.

On most similar occasions, such a strong report, with such surprising results, sending bond yields higher, would be met with widespread selling of stocks – under the belief that any future rate cuts would be delayed indefinitely. But instead, stocks rallied, the takeaway being that a strong labor market seemingly bodes well for corporate earnings and the outlook for sustained economic growth. The 10-year Treasury Note settled the week at a five-month high of 4.39% and the 2-year T-Note settled at 4.73%.

TNX Chart 1

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This data comes on the heels of some hotter-than-expected inflation CPI and PPI data released in mid-March, followed by the PCE inflation data, released on March 29 with the markets closed. Come the following Monday (April 1), stocks rallied. along with some soothing comments from Fed Chair Jerome Powell, only to see the market sell off sharply after hawkish words by Minneapolis Fed President Neel Kashkari and news of Israel canceling home leave for all combat troops in the event of a retaliatory attack by Iran after the Israeli strike in Syria that killed a top Iranian Revolutionary Guard Corps commander.

For the market to have regained its footing during Friday’s session was rather impressive, implying the buy-the-dip mentality is still very much intact heading into the first-quarter reporting season that kicks off this week with big money center banks posting their results on Friday. Adding to the bullish sentiment, the Atlanta Fed GDPNow estimate for Q1 GDP growth was raised to 2.5% from 2.1% as of March 31.

FED GDP Chart 1

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In another development, the managed care sector was sold off aggressively after the Centers for Medicare & Medicaid Services (CMS) set a lower-than-expected reimbursement rate for privately run healthcare plans for 2025. The Biden administration’s decision to hold payment rates unchanged surprised analysts, with JPMorgan noting that only once in the last 10 years have regulators failed to improve final rates from preliminary rates. “We now see the deteriorating rate environment becoming a risk to forward estimates,” wrote B of A analyst Kevin Fischbeck. This once reliable growth and dividend sector is now in full retreat.

In another example of market volatility, the price of a barrel of WTI crude topped $87 last week amid Mideast tensions and OPEC+ stating that they will extend their production cuts of 2.2 million barrels per day for the second quarter of 2024. Mexico is also slashing exports, compounding American sanctions of Russian oil set to put more pressure on U.S. supplies as the summer driving season approaches.

Oil Chart 1

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Any further rise in oil prices and other commodities could complicate future rate cut deliberations.

It’s no surprise that the confluence of these situations has the CBOE Volatility Index (VIX) popping higher along with the price of gold finishing the week out at a new all-time closing high of $2,329/oz.

CBOE Index Chart 1

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The ballooning Federal debt, a high-profile border crisis, and further destabilizing of the U.S./China relationship are also clouding the investment landscape. The re-shoring of industries away from China has resulted in a sharp decline in the world’s second largest economy. Analysts are concerned that China will flood foreign markets with ultra-cheap pricing to spur their economy, threatening U.S. businesses.

FDI Chart 1

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Against this increasingly uncertain backdrop comes the potential for a promising earnings season that can provide impetus to cast aside these negative headlines and bring about a further rise for the market averages that has seen some broadening out of the rally. Fact-Set Earnings Insight says the first quarter’s estimated year-over-year earnings growth rate for the S&P 500 is 3.2%. If 3.2% is the actual growth rate for the quarter, it will mark the third-straight quarter of year-over-year earnings growth for the index.

Without question, the market is seeking another great quarter from the leading AI and technology companies, but there is also strong relative growth being exhibited in numerous leading industrial, transportation, communications, energy, materials, and consumer discretion. The rally is better represented now by sector participation than at any time in the past year. But with the tech sector accounting for a 30.6% weighting of the S&P 500 and a 50.1% weighting for the NASDAQ, there is no doubt about which sector needs to deliver solid earnings, and more importantly, bullish forward guidance.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
With 10-Year Treasuries At 4.4%, How High is Too High?

Sector Spotlight by Jason Bodner
No April Showers on the Horizon

View Full Archive
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About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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