“It’s been a confusing and erratic market, to say the least, this week,” said Keith Lerner, co-chief investment officer at Truist Advisory Services, in a phone interview Friday. “We have somewhat of a fickle market right now.”
*The big gains in Wednesday’s relief rally, which was sparked by Federal Reserve Chair Jerome Powell’s remarks that a large interest rate hike of 75 basis points was not being actively considered by the Fed, have been erased amid concerns the central bank may not be doing enough to bring inflation under control, according to Lerner. Investors are worried that inflation will stay at an elevated level, forcing the Fed to become more aggressive in a slowing economy, he said.*
*But Friday’s employment report should “ease some concerns” that a recession may be looming, according to Lerner, who said he is not expecting a recession in the next 12 months. Even if the economy is slowing, “at least we have some momentum,” he said.*
*The U.S. economy added 428,000 new jobs in April, according to a report Friday from the U.S. Bureau of Labor Statistics. But an acute labor shortage showed little improvement last month, which could underline worries about inflation already running its hottest in 40 years. Economists polled by The Wall Street Journal had forecast 400,000 new jobs.*
*The unemployment rate was unchanged at 3.6%, the government said Friday, just above a 54-year low. Average hourly earnings cooled, rising 0.3% in April versus expectations for a 0.4% increase.*
*The jobs report “has something for everyone…steady job gains supporting economic growth with less wage pressure, possibly easing inflation fears,” said John Lynch, chief Investment officer for Comerica Wealth Management.*
*Nonfarm payrolls climbed 428,000 in April, yet a smaller labor force may put pressure on employers to boost wages to bring workers back. That dynamic may complicate the central bank’s fight to tame inflation as officials try to bring labor demand in line with supply. The participation rate -- the share of the population that’s working or looking for work -- sank. While average hourly earnings fell short of estimates on a monthly basis, they were up 5.5% from a year earlier.*
*One weak area of the report was the labor force participation rate, which was little changed month over month and remains 1.2 percentage points below its pre-pandemic level. Economists believe that a recovery in participation could help stem the rise in wages and, by extension, inflation.*
*Elsewhere in economic data, the Fed’s consumer credit data showed an increase of $52.4 billion in March, more than double what economists expected, according to Dow Jones.*
“Investors need confidence that the Fed won’t raise too aggressively and topple the economy into recession in their fight against inflation. Today’s report is balanced and may prove to dampen the extreme volatility of recent days,” he wrote.
*“The widely anticipated relief rally seen in equities and bonds post the ‘less hawkish than feared’ Fed on Wednesday was short lived,” Barclays strategist Emmanuel Cau said in a note to clients. “Although aggressive 75bp hikes going forward may be off the table, the implied policy tightening cycle ahead is still very hawkish, in our view. Unless surging inflation quickly reverses its course (watch US CPI print next Wednesday), central banks may have no other choice than slowing growth to slow inflation and stay credible.”*
*Comments:*
# A further drop in the participation rate “could exacerbate the labor supply shortage, resulting in further wage pressures that will inevitably flow through to broad-based inflation,” said Peter Essele, head of portfolio management at Commonwealth Financial Network. “The Fed will surely speed up the pace of tightening if the participation rate continues to decline amid a robust hiring backdrop.”
By: via @AlliesFin Serve Stock Market
