Crude oil is driving stocks until earnings season begins Thursday
Markets did not wince after receiving the March employment report on Friday, despite a top line gain in employment for the month (98K), which was significantly below consensus expectations (175K). In fact, equity market trading did not appear to reflect any investor concern about either the jobs miss or President Donald Trump’s military action taken against Syria earlier in the week, as all three majors closed the session Friday only fractionally lower.
The Dow Industrials (^DJI, DIA) slipped 0.03%, while the S&P 500 (^GSPC, SPY) and NASDAQ (^IXIC, QQQ) ticked 0.08% and 0.02% lower respectively. Given the magnitude of the top line miss and the stronger-than-expected ADP report released earlier in the week, it would not have been at all surprising to see at least some weakness in Friday’s trade. It did not materialize.
Any potential weakness that could have materialized in equity markets on Friday was offset by several factors, including detailed data within the report. The unemployment rate dropped to 4.5%, a 10-year low. More importantly, from a monetary policy perspective, the Labor Force Participation Rate remained unchanged at 63%, Average Hourly Earnings ticked higher by 0.2% for the month and by 2.7% on a year-over-year basis. All four data points continue to suggest that labor market conditions are continuing to tighten modestly and that incremental wage inflation is a factor in the employment landscape. Broadly speaking, the report augers for a continuation of the monetary policy framework that the Federal Reserve and FOMC have outlined in recent meetings.
Crude giving a lift to equities
Another factor that helped provide support to equity markets last week came as a result of the ongoing rebound in crude prices. Certainly to a degree, Trump’s strategic military strike against Syrian military assets did fuel some buying in the space in recent days, but the reversal of recent lows was set in place in the prior week. Potential continued buoyancy in crude prices will be subject to several factors, including the outcome of the OPEC and non-OPEC production talks in coming weeks. In the meantime, investors will be keeping a close eye on the EIA Petroleum Status report due out on Wednesday morning.
My expectations, outlined in last week’s note, that equity markets would trade in a holding pattern last week, has held up as the S&P 500 slipped an incremental 0.15% on the week in spite of several potentially upending developments. This week, investors will be looking forward to the launch of Q1 earnings season. Highlighting this week’s earnings calendar will be financials. On Thursday, JP Morgan (JPM), Citigroup (C) and Wells Fargo (WFC) will all release Q1 results. Other noteworthy results this week include Delta Airlines (DAL) and Taiwan Semiconductor (TSM).
This week’s economic calendar will provide further insight into how the broader economy fared in Q1. On Monday, we receive labor market conditions for March, and on Tuesday, the NFIB report. Wednesday’s data will be headlined by import and export prices (c. -0.2%), Atlanta Fed business inflation expectations and the EIA Petroleum Status Report. Thursday, weekly jobless claims, PPI-FD (c. 0.0%). Friday, markets are closed in observance of Good Friday, but we will still receive CPI (c. 0.0%), retail sales (0.0%) and business inventories (c. 0.3%).
