Robust Jobs Report Lifts Stocks, Bond Yields

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A new day, a new quarter, and market volatility remains solidly in place. The market’s major indexes were headed moderately higher in early trading, reversing course yet again during an up-and-down week of trading.

How investors absorb the jobs report will ultimately dictate how the day unfolds. Some 431,000 people went back to work in March, according to the Labor Department. That elbowed the unemployment rate lower to 3.6%, near its pre-pandemic levels.

Average hourly earnings climbed 0.4% from February, putting them at a 5.6% year-over-year increase. Much of the payroll gains were seen in leisure and hospitality jobs, reflecting the post-COVID 19 pent-up demand that has put hotel, restaurant and bar employees back to work.

Though the numbers were widely considered robust, the job market is still very tight. That’s likely to add fodder to the Federal Reserve’s inclination to up interest rates by .50 basis points in May.

Treasury yields moved higher, inverting again, though barely. The benchmark 10-year Treasury yield rose to 2.414% and the two-year notes edged above it at 2.420%. Yields rise as bond prices decline.

Watch what happens at the close to get a better sense of what investors are thinking. The bumpy ride this week underscores the level of cautious optimism out there. If investors continue to feel good, there should be some strength at the close. If not, they’re likely to unload holdings ahead of the weekend, not wanting to hold on to the risk.

Potential Market Movers

Gamestop (GME) shares soared as much as 17% in pre-market trading after the world’s largest brick-and-mortar video game retailer said in a Securities and Exchange Commission filing it would seek shareholder approval to broaden its common stock base. It’s a huge expansion to 1 billion shares from the 300 million on the markets now.

GME, whose shares have bounced around since the start of the year, looks to split the stock via a dividend payout, according to the filing. Upping share counts could also help “provide flexibility for future corporate needs.” Shares of the so-called “meme” stock surged more than 60% last month, partly driven by Chairman Ryan Cohen’s purchase of another 100,000 shares. That put his ownership at 11.9%. He bragged about it on Twitter, saying, “I put my money where my mouth is.”

Technology stocks were getting a reprieve, and banks stocks were mostly headed higher in early trading, reversing a downward trend that has dominated most of this week.

Reviewing the Market Minutes

The trifecta of bad news that marked March’s trading period played out in a late-day sell-off Thursday as investors wrapped up trades for the month and the quarter.

All three indexes tumbled 1.5%, or slightly deeper, as a down day of trading turned more negative in the final hour. That’s not necessarily unexpected considering the first quarter was probably among the most strife-filled as the war in Ukraine heightened, inflation surged, and interest rates jumped.

Still, March is going down as the most positive since the year began. The S&P 500 (SPX) finished the month 5.2% higher than when it started, recovering roughly 50% of its losses year to date. The Dow Jones Industrials ($DJI) ended better than 4% to the upside, while the Nasdaq ($COMP) advanced 5% for the month. On the bad news side, this was the first quarter ending lower since the pandemic began.

United States oil futures bounced around from $107 per barrel to $99 per barrel before settling at $100.83. Oil headed solidly lower after President Biden announced he would release 1 million barrels from the Special Reserves to help offset rising costs of prices at the pump.

CHART OF THE DAY: BUMPY RIDE IN THE OIL PATCH. Crude oil futures have been all over the place in recent weeks, and gas prices have jumped amid worries of global shortages during the Russian-Ukraine war. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Three Things to Watch

INFLATION REACHES FRESH PEAK: The Personal Consumption Expenditures Price Index, known as the PCE, vaulted 5.4% in February from the year-ago period, the Commerce Department commented on Thursday. That was its biggest leap since 1983.

Adding in gas and groceries—considered volatile even in the best of times—and the headline PCE at 6.4%, this is the highest the index has been since January 1982. That’s four decades.

It looks like the higher prices for food and gas might have shifted consumer spending, which rose a mere 0.2% compared with a 0.5% Wall Street estimate. Energy prices were higher by 3.7% for the month, while food rose 1.4%.

The Federal Reserve has said it considers the PCE the best benchmark for inflation. And remember this too: The Fed targets 2% as the most acceptable inflation increase.

HOME OWNERSHIP GETS PRICIER: Rates for a 30-year, fixed-rate mortgages are back to 2018 levels, according to Freddie Mac. Interest rates shot up a quarter-percentage to 4.67% this week, up 1% over the year-ago rate and higher by 1.5% from end of last year.

It’s no surprise rates are rising, given their record-low status for so long and the aggressive stance the Federal Reserve is taking on upping rates to help wrangle unprecedented inflation spikes. But few thought it would be such a rapid rise and are worried a 5% level is a near-term reality.

This raises fears that mortgage rates can spiral to a point where they choke housing demand, considering higher home prices are already in play. Borrowers with a $300,000 mortgage are looking at a $1,551 payment, before escrow, under the current 30-year average, according to Bloomberg. In three months, that has jumped by $268 from when rates were 3.11%.

EUROPEANS SAY NUH-UH TO PUTIN: Another Vladimir Putin-inspired battle may be taking shape abroad. European leaders on Thursday said “No” to Putin’s demands that natural gas coming out of Russia must be paid in rubles beginning Friday.

Europe is widely dependent on Russia’s oil—Germany, for example, imports 55% of its needs from Russia—but leaders still shook their heads to Putin’s threats to halt gas supplies from buyers who don’t open ruble accounts in Russia’s state-controlled Gazprombank.

“It is from those accounts that gas will be paid for starting April 1,” Putin said in a televised conference. “If such payments aren’t made, we will consider this a failure by the client to comply with its obligations.”

The European rejection follows Poland’s dictate earlier this week that it will cut Russian oil imports by the end of 2022 as well as Germany’s early-warning signal to consumers to begin scaling back demand as it wrestles with storage levels.

How the standoff plays out is yet to be seen, but some market watchers believe if Putin holds still on his demand, he will do the equivalent of cutting off his nose to spite his face. Oil sales are among Russia’s most important contributors to its economy.

Notable Calendar Items

April 1: Unemployment Rate, ISM Manufacturing

April 4: Durable Goods

April 6: MBA Mortgage Applications

April 7: Jobless Claims, Consumer Credit

April 8: Wholesale inventories

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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