Despite reaching a new closing high of 1890 on Wednesday of last week, U.S. equities managed to squeeze out only a fractional gain last week, as the S&P 500 rose 0.4%. Prices turned decidedly weaker on Friday, after the March jobs report. The report itself was not bad, but just not strong enough to hold back the tide of selling that started a few weeks ago among high-flying momentum names in biotech and technology, and spread on Friday to ensnare a wider swath of cyclical groups.
Among the ten sector groups in the S&P 500, only utilities managed a gain on the day. Among the broader averages, the worst of the selloff was reserved for the Nasdaq Composite, given its higher concentration of biotech and internet names. The index lost 2.6% on Friday and 0.7% on the week.
Despite the late-week selloff, the S&P so far remains within the roughly 3% trading range that has persisted since early March, trading as low as 1841 and as high as 1890. The S&P ended the month of February at 1859 and closed last week at 1865. The Nasdaq, on the other hand, is lower by more than 4% in that time.
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The March jobs report showed that 192,000 new non-farm jobs were created during the month, just below the 200,000 consensus forecast. However, the prior two month totals were revised higher by a combined 37,000 jobs, putting the overall total right on top of the 225,000 so-called whisper forecast for March.
In addition, the average weekly number of hours worked rebounded to its previous recovery high, after having slumped over the past three months. Even the labor force participation rate increased for the second time in three months in a sign of rising confidence. The unemployment rate held steady at 6.7%.
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There were some notable points of weakness in the report. The manufacturing sector actually shed jobs for the first time since July. In addition, the percent of underemployed workers rose for the first time since October. And there was no growth in the average hourly earnings during the month.
But it should also be noted that the surveys behind the report were conducted during the week that included March 12 — in other words, during a period of time when weather was still a factor that may have slowed the pace of job creation. As reported earlier last week, U.S. automobile sales exceeded expectations in March as showroom traffic picked up during the second half of the month.
Bond investors concluded that the employment report was weak enough to keep the Fed from accelerating the likely path of monetary policy, and pushed the yield on the ten-year Treasury note down eight basis points to 2.72%, and the yield on the two-year down to 0.41% from 0.46. Lower-quality bond yields also fell, but to a lesser degree, resulting in a modest widening of credit spreads.
As the weather fades as a headwind, the burden will increase on firmer economic data to support higher equity prices. First quarter earnings, which begin reporting this week, look to be quite soft, even though they may once again exceed lowered expectations. But they will be largely dismissed if the economy improves going forward.
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