In a busy week for trade and economic headlines, stocks were hit hard last week as the volatility that has come to define markets in 2018 persisted.
On Friday, each of the major U.S. indexes lost more than 2% after a disappointing jobs report and a speech from Federal Reserve Chair Jerome Powell that markets took as signal the Fed would not likely be pushed off its path to raise interest rates amid market turmoil and trade uncertainty. After Friday’s close, each of the Dow, S&P 500, and Nasdaq are in red figures for the year
Stocks opened Friday sharply in the red after news late Thursday that President Donald Trump has told administration officials to consider an additional $100 billion in tariffs on Chinese imports. Early Friday, China’s state media said it would “fight back immediately and without hesitation,” according to the AFP.
In a tweet on Sunday morning, Trump said China would “take down its Trade Barriers because it is the right thing to do.” The President added that, “Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!”
The continued noise around trade will likely set the tone in the week ahead, while the corporate and economic schedule will also be busy.
The week’s biggest event will come Tuesday and Wednesday, when Facebook (FB) CEO Mark Zuckerberg is set to appear before lawmakers on Capitol Hill to discuss the misuse of user data and its role in the U.S. presidential election.
Last week, Zuckerberg said on a call with reporters that he was still the best person to run the company. Facebook COO Sheryl Sandberg, meanwhile, told The Today Show in an interview on Friday that it’s “possible” there have been other data breaches at the social network.
The New York Times on Sunday wrote that Zuckerberg’s testimony this week “will represent one of the biggest tests of his career, and a pivotal moment for the company’s future.” Year-to-date, Facebook shares are down around 13% after investors enjoyed a stellar run from $25 to $190 per share over the last four years. Expect markets to pay very close attention to what is said by Zuckerberg this week in Washington.
After a lull in the earnings calendar, first quarter earnings season will start to get underway with big financial names leading the charge. In the week ahead, JP Morgan (JPM), Wells Fargo (WFC), Citi (C), PNC Financial (PNC), BlackRock (BLK), and Delta Air Lines (DAL) will all report results.
And on the economic calendar, inflation data on Wednesday, along with the minutes from the latest Federal Reserve meeting, will highlight the schedule with markets also taking stock of readings on small business confidence, consumer sentiment, and job openings.
Monday: No major economic data set for release.
Tuesday: NFIB small business optimism, March (107 expected; 107.6 previously); Producer prices, March (+0.1% expected; +0.2% previously)
Wednesday: Consumer price index, month-on-month, March (0% expected; +0.2% previously); “Core” consumer price index, year-on-year, March (+2.1% expected; +1.8% previously); Federal Reserve meeting minutes
Thursday: Initial jobless claims (230,000 expected; 242,000 previously); Import price index, March (+0.1% expected; +0.4% previously)
Friday: Job openings and labor turnover survey, February (6.31 million jobs open previously); University of Michigan consumer sentiment, April (100.6 expected; 101.4 previously)
‘Stay calm’ — How economists reacted to a disappointing jobs report
The March jobs report was a bit of a disappointment.
To end the first quarter, the U.S. economy added 103,000 jobs and the unemployment rate stayed put at 4.1% for the sixth-straight month. Economists had expected 185,000 were created in March with the unemployment rate forecast to fall to a new post-crisis low of 4%.
Wage growth, which has been closely tracked by economists for signs of inflation pressures building in the economy, was good, but not great, in March. Over the prior month wages rose 0.3% and over the prior year average hourly earnings rose 2.7%. Both numbers were in-line with expectations and continue to indicate only modest aggregate pricing pressures in the labor market.
But beyond these headline numbers, March’s jobs report fits into the context of a labor market that continues to press towards full employment, albeit at a sometimes plodding pace.
“Stay calm,” said Jed Kolko, chief economist at Indeed. “The March jobs report was just fine, and better than it looks at first glance. Although the 103k payroll gain was the lowest in six months, bad weather was probably a factor: excluding weather-sensitive sectors like construction and leisure & hospitality, March job growth was only modestly below the previous year’s average.”
Kolko added that, “[monthly job] growth in the 100k range is more than enough to keep up with the slow-growing working-age population. We’ll eventually have to get used to monthly gains of 100k or less.”
Economists at Bank of America Merrill Lynch led by Michelle Meyer also noted that their work shows the “breakeven” rate of job growth for the U.S. economy to keep up with labor force growth without sending inflation higher is about 120,000 jobs per month.
And despite all the potential for BAML’s assumptions about labor force and population growth to be off, the firm writes that, “it is clear that the current pace of job growth is well above the breakeven rate, which implies that the unemployment rate should fall further.”
BAML adds that, “This explains our forecast for the unemployment rate to reach 3.6% by year-end and 3.2% by end of 2019. This also means that some slowing in the pace of job growth should not come as a shock as the business cycle advances given that there is still a cushion before the breakeven rate is realized.”
Friday’s jobs report also showed signs of continuing tightness in the labor market beyond the headline wage and employment numbers. In March, for example, the number of people qualifying as long-term unemployed as a percent of the total number of unemployed workers fell to a 9-year low.
Josh Wright, chief economist at iCIMS, said this number “has gone under-appreciated.” Adding that this is “a sign that the private sector is reaching deeper into the labor pool — a harbinger of true labor market tightness.”
And when it comes to how March’s jobs report might change things for the Federal Reserve, the answer is that it likely won’t.
“[The March] jobs report should not change anyone’s views on the outlook for monetary policy,” said Neil Dutta, an economist at Renaissance Macro. “The principle story as we see it is that despite above trend jobs growth in the main, the unemployment rate has been flat for six months.”
In a speech on Friday, Federal Reserve Chair Jerome Powell said, “The headline unemployment rate is arguably the best single indicator of labor market conditions.” On this background then, the March jobs report was only a disappointment because people had expectations, not because the labor market has actually changed at all.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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