Thursday’s market turnaround, with stocks closing lower after initially trading higher, was a rare occurrence, happening only about 10% of the time. The S&P 500 fell 1.23% and the Nasdaq Composite dropped 1.4%, with all eleven sectors closing lower. Whether or not the jobs report released that day will help the market remains to be seen.
The March employment report showed better than expected numbers, with 303 thousand new jobs created and unemployment dropping to 3.8%. Various sectors such as leisure and hospitality, government, and education/healthcare saw significant gains. Equities initially sold off following the report, but quickly regained ground. However, bonds fell, pushing interest rates higher, with the benchmark 10-year now yielding 4.37%.
The decline in the market on Thursday saw both the S&P 500 and Nasdaq close below their 21-day moving average, marking a significant break in support for the strong market. Volume was heavy and volatility shot up 14%, with the VIX closing at 16.35. Economic news in the morning showed initial jobless claims higher than forecast, leading to speculation about potential interest rate cuts by the Federal Reserve.
Statements by Federal Reserve members Kashkari and Barkin tempered hopes for lower rates, as they suggested that strong economic data could negate the need for any cuts this year. On the international front, Israel’s warnings about potential retaliatory strikes following an attack in Damascus led to fears of escalated violence in the already volatile Middle East, sending oil prices sharply higher.
Looking ahead to next week, earnings season begins with banks starting off. Earnings growth for the first quarter was 3.6%, with higher estimates for the following quarters. Stock prices could be impacted by whether these expectations are met, with consensus forecasts for second, third, and fourth quarter growth at 9.4%, 8.5%, and 17.6%, respectively. The Magnificent Seven group of stocks has been a key driver in the market, but recent weakness in some companies raises questions about their leadership role.
The market seems to be divided between those pushing for interest rate cuts and those focusing on strong earnings and economic growth. The risk lies in either earnings missing expectations or growth becoming inflationary. As attention turns to next week’s CPI, PPI, and earnings reports, volatility is expected to remain high. Stick to long-term investment plans and objectives amid the uncertainty in the market.
