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May 10,2024
The Dow Jones Industrial Average is on a remarkable 7-day winning streak. This consistent upward trend is a positive sign for the market. Earning season is also concluding on a high note, with 80% of the S&P 500 companies reporting earnings and an impressive 77% of them surpassing estimates. These figures are not only in line with the 5-year average of 77% but also exceed the 10-year average of 74%, indicating a strong market performance. Of course, it is worth mentioning that companies have engaged in share buy-backs, a tactic that drives up earnings per share. This means that beating earnings estimates could be more to do with accounting versus growing top line sales.
The jobless claim report has emerged as a significant development this week. The seasonally adjusted jobless claims for the week ending May 4th stood at 231,000, marking a notable increase of 22k from the previous week. This figure, the highest since August 2023, could potentially indicate a cooling of an otherwise robust labor market, a factor that could significantly impact market trends. We believe this development warrants careful observation and analysis of asset classes and the business cycle.
Jobless claims suggest layoffs are increasing. Still, it’s too soon to tell if this will be the persistent increase that boosts Fed readiness to cut interest rates or if it’s just a catch-up move driven by seasonal factors. If the unemployment rate rises to 4.0% over the next two months, policymakers could be ready to cut by July. We don’t think this will be the case and would not be surprised if we don’t see a move in 2024.
Unadjusted initial claims in New York (+10.2k) and California (+4.2k) saw the largest gains. In California, it is estimated that the minimum-wage hike could lead to a loss of 30k-90k jobs and a potential rise in the unemployment rate by 0.2-0.5 percentage points this year. This could add three to nine basis points to the national unemployment rate. The intended goal of the minimum wage hike was to improve living standards, but the untended consequence of increasing dependence on government assistance seems to be a more accurate outcome.
These are interesting times when disappointing news on the economy move markets positively hanging on the hopes that our Federal Reserve will lower rates. Conversely, news of a strengthening economy often triggers a selloff. This is because consumers fear interest rates will remain higher longer.
Currently, we are maintaining a neutral stance on the economy, and the markets. Our team is carefully researching undervalued positions that may provide long-term opportunities. Our approach ensures that we are not swayed by short-term market fluctuations and are focused on long-term gains. Our money markets are still yielding approximately 5%, offering an attractive return on cash.
Sources:
https://www.cnbc.com/2024/05/09/weekly-jobless-claims-jump-to-231000-the-highest-since-august.html
Bloomberg
