Markets started the week pushing higher on Monday after the Labor Department’s Good Friday announcement that employers added 916,000 jobs in March, beating estimates of 650,000 new jobs. Strong economic data supported the market throughout the week. The TSX ended the week gaining 1.00%, while the S&P jumped 2.71% as large-cap stocks regained some of their appeal among investors. The Nasdaq added 3.21% in the week, but the Russell 2000 lost some ground, losing .47%. The tech sector benefited from Apple and Microsoft’s strength, accounting for 40% of the sector market cap. Growth stocks outpaced value, as did large-cap equities over small-cap.
As mentioned above, the Labor Department’s new jobs report kicked off the week on a positive note. Not only was the March report encouraging, but the jobs in January and February were also revised higher. Leisure and hospitality payrolls rose by 280,000 after a revised gain in February of 384,000. Sectors across the board showed improvement with education and health services adding 101,000; retail jobs gained 22,500, warehousing and transportation jobs rose by 50,000, manufacturing by 53,000, and construction gained 110,000 jobs after declining in February by 56,000 mainly due to weather-related difficulties.1
The US Labor Department’s monthly job openings survey increased to 7.37 million as of the end of February. Job openings indicate labor demand, and the latest increase is the second monthly rise and the highest level since January 2019. The labor market is responding to the increase in vaccinations and pandemic relief stimulus. While the openings are encouraging, employment is still 8.4 million jobs short of the peak in February 2020. The layoff rate is running at 1.2%, and the number of workers voluntarily quitting in February rose to 3.4 million from January’s 3.3 million keeping the quit rate at 2.3%. The quit rate is thought to be an indication of job market confidence.2
The Institute for Supply and Management (ISM) reported the service economy exploded to 63.7%, achieving the highest level on record. All 18 sectors of the service industry expanded in March, which is a rarity, but given the service sectors were all but shut down due to the pandemic, the reported month-over-month performance should not be any surprise as the economy starts the re-opening process from a low base. A gauge measuring new orders also jumped to 67.2% from 51.9% in February, and the production index soared 14 points to 69.4%.3
The week’s surprise was the US weekly jobless claims at 744,000, higher than the Dow Jones estimate of 694,000 and the previous week’s 728,000.4 Despite the improvement in job openings, as of the week ending March 20, 18.2 million people are still claiming benefits of some type, including 13 million on extended federal Pandemic Unemployment Assistance.
While the market nervously advances on economic recovery outlook, a watchful eye is cast on interest rates, inflation expectations, impending tax increases, and what damage corporate taxes along with personal tax increases might have on the rate of economic growth. Government spending at current levels not seen since the days of FDR and the depression of the ’30s will come with a cost. The frailty of the economy may very well be tested as the current administration continues to execute its agenda without any regard to the consequences or collateral damage. This next leg of the bull market may very well be fueled not by confidence in government but by lack of confidence and a transition to private assets from public assets. The road ahead will be anything but smooth as the markets climb the proverbial wall of worry. Alternative strategies in both equities and fixed income will prove beneficial in reducing volatility and more certainty of stable returns.
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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