Goldilocks scenario4/29/2023 And while wages are running hotter for the rank and file workers, white-collar workers are beginning to see pay gains slow more notably. As a result, on a year-over-year basis, average hourly earnings rose +5.2% in May, down from the +5.5% pace in April. Yet, average hourly earnings rose by +0.3% month-over-month in May, matching April’s levels and coming in lighter than the +0.4% expected. Then further damaged by Friday’s employment report. Hopes for a pause/slowdown in rate hikes at the September meeting, which had gained some steam recently, were dented in a speech by Fed Vice Chair Lael Brainard on Thursday. A slowdown in rate increases seems less likely The Fed’s recent tone is leading some companies to re-assess labor needsįollowing Friday’s employment report, Fed fund futures now see the Fed raising rates by 50 basis points at the following three FOMC meetings (June, July and September). Instead, the S&P 500 and NASDAQ have closed lower in eight of the last nine weeks. As a result, stocks fell on Friday, dashing the possibility of a second consecutive week of stock gains. Hence, investors viewed the report as confirmation the Fed could be undeterred in its efforts to raise interest rates to stamp out inflation. Although job growth moderated from April’s +436,000 pace (including downward revisions), the moderation was not as much as economists expected. However, job growth last month was more robust than the +323,000 expected. May jobs rose +390,000, while the unemployment rate held steady at 3.6% for the third consecutive month. The May jobs report is a perfect example of the good news is bad news dynamic. Instead, trends could look disjointed over the intermediate-term, which is likely to keep stock volatility elevated and uncertainty high. While growth momentum and inflation pressures are likely to ease in the coming months (helping reduce the risk that the Federal Reserve overtightens monetary policy), the month-over-month changes in incoming data are unlikely to follow a Goldilocks scenario. Notably, the market wants to see trends that show a consistent level of moderation in the pace of growth, inflation, employment, activity, spending, etc., but not enough of a slowdown where it stokes recession fears.īottom line: This is a tall order to fulfill and, in some respects, is an unreasonable ask from market participants. As such, incoming economic releases that come in stronger than expected, particularly on items of employment and inflation, are likely to be greeted with an adverse investor reaction, as it signals the Fed may need to keep pushing interest rates higher.Ĭonsequently, we believe investors are increasingly looking for a Goldilocks scenario across incoming data points. And fears the Federal Reserve is on a collision course to raise interest rates into restrictive territory underpin the challenges stocks face in building sustained momentum to the upside. In our view, we are entering a “good news is bad news” type of market environment. The 10-year yield settled the week at 2.94%. dollar was stronger, fueled by a +3.0% gain versus the Japanese yen. Gold ended last week essentially flat at $1,853 per ounce, and the U.S. Hence, Energy stocks continue to move higher in an otherwise down-trending market. Announcements noting the European Union is readying a strategy to partially ban Russian oil, as well as an OPEC+ agreement that falls short of replacing all the barrels of crude lost to the world from Russian sanctions, placed a stronger bid under crude last week. West Texas Intermediate (WTI) crude rose +3.3% on the week finishing at over $120 per barrel - its highest level since March 8. Energy is up roughly +60.0% year-to-date, trouncing the nearly 14.0% loss this year in the S&P 500. Energy (+1.2%) continued to buck the overall downward trend in the market last week. Nine of eleven S&P 500 sectors finished the week lower, with Healthcare (down 3.1%), REITs (lower by 2.2%), and Financials (off 2.1%) all underperforming the broader averages. The NASDAQ Composite fell roughly 1.0% during the shortened holiday week, and the Dow Jones Industrials Average lost 0.9%. Stocks couldn’t carry their momentum forward last week after breaking a seven-week losing streak, as the S&P 500® Index dropped 1.2%. ANTHONY SAGLIMBENE – GLOBAL MARKET STRATEGIST, AMERIPRISE FINANCIAL WEEKLY MARKETS COMMENTARY - June 6, 2022
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