Market Recap – Week Ending March 8

U.S. Stocks Mostly Lower; Key CPI, PPI Data This Week

Overview: Stocks in the U.S. were mostly lower last week despite a strong jobs report on Friday. After reaching new all-time highs on Thursday, the S&P 500 sold off to finish the week lower by 0.23%, while the tech-heavy Nasdaq Composite index finished the week lower by 1.20%. Meanwhile, small cap stocks managed a positive week of performance as the Russell 2000 added about 0.34% on the week. International markets moved higher last week as well with the MSCI EAFE rallying nearly 2.5%, while emerging markets finished the week higher by about 1.25%. Bonds saw a strong week of performance as yields moved lower across the board following relatively dovish commentary from central banks around the globe. In the U.S., the 2-year and 10-year Treasury notes finished the week trading around 4.49% and 4.09%, respectively. Last week brought the widely followed nonfarm payrolls jobs report, which showed the U.S. economy added 275,000 jobs versus the 200,000 expected. However, we saw some significant revisions to the numbers from last month, with January’s payroll growth revised lower by 124,000. Several figures that appeared skewed in the prior month’s report normalized in February, including some of the inflationary numbers such as average hourly earnings, which rose by a much more modest 0.1% in February compared to 0.6% in January. Looking ahead, investors will closely watch key inflation data this week in the form of the Consumer Price Index (CPI) on Tuesday followed by Producer Price Index (PPI) on Thursday. Just last week, Federal Reserve Chair Jerome Powell stated the central bank is “not far” from cutting rates but needs to see the data continue to confirm their suspicions that inflation remains on its way toward their 2% target.

Update on High Yield Bonds (from JP Morgan): The U.S. economy has seen a significant normalization in labor demand since the pandemic. Last week’s JOLTS report showed 8.9M job openings in January 2024, a 27% fall from the peak of 12.2M openings in March 2022. With the economy expected to soften further this year, labor demand in most sectors will continue to moderate. However, pandemic-related distortions and structural factors have kept openings in some sectors elevated. Job openings have fallen significantly from their peak in March of 2022. Openings in all sectors have declined, and some, like transportation, have come back to their 2019 average. This is due to a mix of easing demand as the economy has decelerated and incremental job gains. Also, labor supply has increased with the record number of individuals coming to the U.S. seeking work. On the other hand, some categories, such as healthcare and social services, are struggling to hire. With openings still 700k higher than the 2019 average, it seems likely the sector could face chronic shortages due to a lack of qualified workers. Also, the government has struggled to hire, presumably because public wages have not kept pace with the growth in private wages until recently. Hiring activity has been solid since the pandemic, but structural issues, like the retirement of baby boomers and skills shortages, are impacting certain sectors. Therefore, job openings should continue to decline unevenly. That being said, with labor market tightness continuing to slowly ease, the Fed should have enough confidence to begin rate cuts this summer.

Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s, Bloomberg, CNBC

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