Stocks Settle Higher as a Strong US Labor Market Powers the Economy

Rich Asplund - Barchart - Fri Apr 5, 3:35PM CDT

The S&P 500 Index ($SPX) (SPY) Friday closed up +1.11%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.80%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.28%.

Stock indexes on Friday posted moderate gains. Stocks rallied Friday on optimism that strength in the US economy will continue to fuel consumer spending and corporate profits. Stocks rose even after Friday’s stronger-than-expected US payroll report increased the chances of higher interest rates for longer. An easing of wage pressures was also supportive for stocks after Friday’s payroll report showed that the average hourly earnings in March eased to +4.1% y/y, the smallest pace of increase in 2-3/4 years.

A negative factor for stocks was Friday’s jump in T-note yields after US payrolls rose well above expectations. March nonfarm payrolls rose +303,000, well above expectations and by the most in 10 months, bolstering expectations that the Fed will be in no hurry to cut interest rates.

Hawkish Fed comments Friday kept T-note yields higher and suggested the Fed will not cut interest rates anytime soon. Dallas Fed President Logan said “it’s much too soon” to think about cutting interest rates on concern that inflation progress could stall out and that price growth could fail to cool “in a timely way” to the Fed’s 2% target. Also, Fed Governor Bowman said she continues to see a number of upside risks to inflation, and it is "still not yet" time to lower interest rates. She added that it's "quite possible" that the level of the federal funds rate consistent with low and stable inflation "will be higher than before the pandemic, and if that is the case, fewer rate cuts will eventually be appropriate to return our monetary policy stance to a neutral level."

US Mar nonfarm payrolls rose +303,000, stronger than expectations of +214,000 and the biggest increase in 10 months. The Mar unemployment rate fell -0.1 to 3.8%, right on expectations.

US Mar average hourly earnings eased to +4.1% y/y from +4.3% y/y in Feb, right on expectations and the slowest pace of increase in 2-3/4 years.

US Feb consumer credit rose +$14.125 billion, below expectations of +$15.000 billion.

The markets are discounting the chances for a -25 bp rate cut at 6% for the next FOMC meeting on April 30-May 1 and 53% for the following meeting on June 11-12.

Overseas stock markets on Friday settled lower. The Euro Stoxx 50 fell to a 2-week low and closed down -1.10%. China's Shanghai Composite was closed for the Tomb Sweeping Day holiday. Japan's Nikkei Stock Index fell to a 3-week low and closed down -1.96%.

Interest Rates

June 10-year T-notes (ZNM24) on Friday closed down -15 ticks. The 10-year T-note yield rose +8.1 bp to 4.390%. June T-note prices retreated Friday on the larger-than-expected increase in US Mar nonfarm payrolls, reinforcing speculation the Fed will be in no hurry to cut interest rates. Also, an increase in inflation expectations undercut T-note prices as the 10-year breakeven inflation rate Friday rose to a 4-3/4 month high of 2.399%. T-notes maintained their losses on hawkish comments from Dallas Fed President Logan and Fed Governor Bowman, who said it’s “much too soon” to think about cutting interest rates.

T-notes garnered some support Friday from easing US wage pressures after Mar average hourly earnings eased to +4.1% y/y, the smallest pace of increase in 2-3/4 years.

European government bond yields on Friday moved higher. The 10-year German bund yield rose +3.8 bp to 2.399%. The 10-year UK gilt yield rose +4.8 bp to 4.069%.

Eurozone Feb retail sales fell -0.5% m/m, weaker than expectations of -0.4% m/m.

German Feb factory orders rose +0.2% m/m, weaker than expectations of +0.7% m/m.

The German Feb import price index fell -0.2% m/m and -4.9% y/y, weaker than expectations of unchanged m/m and -4.6% y/y.

US Stock Movers

Newmont (NEM) closed up more than +5% after gold prices rallied to a record high and silver prices climbed to a 2-year high.

Western Digital (WDC) closed up more than +3% after Rosenblatt Securities upgraded the stock to buy from neutral with a price target of $115.

Arch Capital Group Ltd (ACGL) closed up more than +3% after its insurance unit announced that it will buy Allianz Global’s US MidCorp and Entertainment Insurance businesses for $450 million.

Uber Technologies (UBER) closed up more than +3% after Jeffries raised its price target on the stock to $100 from $95.

Eaton Corp Plc (ETN) closed up more than +3% after RBC Capital Markets upgraded the stock to outperform from sector perform with a price target of $371.

Chip stocks rallied Friday and supported gains in the technology sector. Nvidia (NVDA), Advanced Micro Devices (AMD), ASML Holding NV (ASML), and Applied Materials (AMAT) closed up more than +2%. Also, Broadcom (AVGO), Marvell Technology (MRVL), KLA Corp (KLAC), Lam Research (LRCX), and Microchip Technology (MCHP) closed up more than +1%.

Krispy Kreme (DNUT) closed up more than +7% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $20.

Vertiv Holdings (VRT) closed up more than +5% after Oppenheimer initiated coverage on the stock with a recommendation of outperform and a price target of $96.

Shockwave Medical (SWAV) closed up more than +1% after Johnson & Johnson agreed to acquire the company for $13.1 billion of $335 a share.

Tesla (TSLA) closed down more than -3% to lead losers in the Nasdaq 100 after a Reuters report said the company had canceled its plans to build a low-cost entry-level Tesla car.

Paramount Global (PARA) closed down more than -3% after CNBC reported that Skydance Media will keep the company public and either own a substantial minority stake or a majority stake in the company by merging its assets and raising new equity.

Lamb Weston Holdings (LW) closed down more than -2% after Citigroup cut its price target on the stock to $106 from $132.

Intel (INTC) closed down more than -2% to lead losers in the Dow Jones Industrials and Nasdaq 100 on negative carryover from Wednesday when it gave a downbeat outlook for its factory operations.

Defensive packaged food producers moved lower Friday as the broader market rallied. As a result, Campbell Soup (CPB), Hormel Foods (HRL), J M Smucker (SJM), Hershey (HSY), and McCormick & Co (MKC) closed down more than -1%.

CCC Intelligent Solutions (CCCS) closed down more than -1% after announcing a proposed secondary offering of 20 million shares of its common stock.

Earnings Reports (4/8/2024)

Eagle Pharmaceuticals Inc/DE (EGRX) and Waldencast plc (WALD).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.