A "Goldilocks" type of jobs report—not too hot or cold—sent stocks soaring and yields sharply lower early Friday. The government reported April jobs growth of 175,000, well below the 12-month average of 242,000, easing concerns about the economy running too fast. Wage growth also was below expectations at 0.2%, which could reduce inflation worries.
U.S. job growth of 175,000 in April well below expectations, sending yields down, stocks up
Apple surges nearly 6% on earnings, stock buyback announcement, with Berkshire on tap Saturday
Stay tuned Monday for Fed’s Senior Loan Officer Survey providing credit market insight
(Friday market open) Weaker-than-expected U.S. April jobs and wage growth eased worries on inflation-sensitive Wall Street early Friday, sending major indexes up sharply and pushing down Treasury yields ahead of the open.
Job gains of 175,000 and wage growth of 0.2% were well below the average analyst expectation of 250,000 and 0.3%, the first time in months that the government’s monthly Nonfarm Payrolls report signaled any type of slowing in the hot U.S. labor market. The 12-month average is 242,000.
Unemployment ticked up to 3.9% from the previous 3.8% but remained below 4% for the 27th consecutive month. In sum, the report was not too hot, but also not too cold. Even growth of 175,000 is generally considered positive for the economy, just not so strong that it raises worries about wage competition pushing up prices.
Previous reports showed massive jobs growth and fast-rising wages, which helped lift Treasury yields in recent months as inflation fears mounted. But today’s report, which also included a slight downward revision to previous months’ job gains, could loosen the tension slightly.
The benchmark 10-year Treasury note yield plunged 10 basis points to 4.47% immediately after the data, the lowest level in nearly a month. Meanwhile, the CME FedWatch Tool now shows a 44% chance of a Fed rate cut by July, up from around 34% before the jobs report. Chances of a cut at next month’s meeting remain quite low, below 15%.
Today’s jobs report follows the market’s cheery response to Apple’s (AAPL) earnings and massive stock buyback announcement late yesterday. In fact, if it weren’t for the payrolls data, Apple results on their own might have provided Wall Street a boost. Apple’s huge market capitalization swings a lot of weight, but its influence may be lighter today as investors focus on employment and the reaction from Treasuries and the dollar.
Apple reported lower year-over-year revenue partly due to falling iPhone sales, but surpassed analysts’ average earnings per share estimate and matched the average revenue estimate. The company also raised its dividend and outlined a plan to purchase $110 billion in shares. Mac and services revenue impressed even as iPhones fell victim to a tough market in China, as expected.
Futures based on the S&P 500® index (SPX) rose 1.11% shortly before the close of overnight trading and futures based on the Nasdaq-100® (NDX) climbed 1.5%. Futures based on the Dow Jones Industrial Average® ($DJI) jumped 1.3%.
Digging deeper into the Nonfarm Payrolls data, April’s gain of 175,000 was well below the average of 242,000 the last 12 months and down from a revised 315,000 in March, the Labor Department said. The government also downwardly revised February and March jobs growth by a combined 22,000. Average hourly earnings rose 0.2% to $34.75 and are up 3.9% over the last 12 months. The average work week fell 0.1 hour to 34.3 hours.
Health care led sector jobs growth in April, adding 56,000 positions, the government said. Social assistance jobs climbed 31,000, and transportation and warehousing added 22,000. Retail trade edged up as well, but growth was scant in some of the more economically sensitive areas such as construction, mining, and manufacturing. Also, leisure and hospitality saw little jobs growth, an interesting development when you consider how strong the services sector has been over the last year or two.
Labor force participation, another closely watched metric, was unchanged at 62.7% in April, near the level it reached just before the pandemic. There was no change in the number of people not in the labor force who currently want a job, and the number of long-term unemployed changed little.
Data continue today with the April ISM Non-Manufacturing PMI report (see more below) and the U.S. S&P Global Composite PMI final read. Investors are also digesting earnings late yesterday from Amgen (AMGN) and Coinbase (COIN). On Saturday, Warren Buffett’s Berkshire Hathaway (BRK/A) is expected to report quarterly results.
And welcome or not, Federal Reserve speakers are back, with two on tap today. Wednesday’s combined announcement of U.S. Treasury buybacks and the Fed’s slowing of its quantitative tightening (QT) program (designed to slow economic growth) gave the bond market, and in turn, the equity market, some relief. Investors initially saw these actions of liquidity-supportive buying and less QT as supportive for bonds in the near term. Fed Chairman Jerome Powell’s follow-up remarks also helped keep rate cuts at least in the picture while giving no clearer view on a timetable.
Earnings scorecard: Keep an eye out today for the updated weekly FactSet report on blended first-quarter S&P 500 earnings growth, which will now reflect six of the seven mega-cap firms. Their reports tend to swing a huge amount of weight for overall earnings due to their massive market capitalizations. The research firm last week pegged Q1 earnings growth at 3.4%, but that was before Apple and Amazon (AMZN) reported.
Polished enough? Apple shares rose more than 6% in premarket trading after yesterday’s quarterly results, but some of the raw numbers weren’t impressive. Share strength might instead reflect Apple raising its dividend 4% and announcing plans to buy back $110 billion in shares. Beyond that, falling iPhone sales and another quarter of year-over-year revenue declines weren’t bullish.
Apple beat the average Wall Street earnings per share estimate by a smidgen and roughly matched the average analyst revenue forecast. However, revenue of $90.75 billion was down about 4% from a year earlier, partly reflecting a 10% annual drop in sales of the iPhone amid soft sales in China, where competition teems. Revenue has fallen year over year in five of the last six quarters, one reason shares were down 10% for the year heading into earnings.
Services, where Apple derives some of its best margins, enjoyed record sales during the quarter, rising more than 14%. Mac sales also impressed, coming in above analysts’ expectations. And while the company typically doesn’t provide guidance, CEO Tim Cook told CNBC that he expects revenue to rise in the low-single digits during the current quarter. The average analyst estimate for the quarter ending in June has year-over-year revenue growing 1.9% to $83.3 billion.
Before that quarterly report, investors await an Apple event next Tuesday where the company is expected to introduce upgrades to the iPad. And June brings Apple’s Worldwide Developers Conference, which has an especially high profile this year because it could include more color on the company’s AI plans.
Stocks on the move:
Price check: Today’s ISM Non-Manufacturing PMI, due out soon after the open, could put the focus on inflation once again. Consensus for the headline non-manufacturing number is 51.8%, according to Briefing.com, up slightly from 51.4% in March. Anything above 50% signals expansion. Prices paid was 53.4% in March, down from 58.6% in February. Investors likely want to see more of that downward trend today in hope that services inflation could be slowing.
Next up: There’s a dearth of major economic data early next week, and things don’t really build much from there. Earnings also die down quite a bit now that almost all the mega caps have reported. Nvidia (NVDA) looms later this month.
Walt Disney (DIS) is the standout as far as mammoth company reports next week, while investors will also watch Monday’s Federal Reserve Senior Loan Officer Opinion Survey (see more below) and await next Friday’s preliminary May Consumer Sentiment report from the University of Michigan.
Breadth check: Market breadth continues to weaken, with defensive stocks outperforming. The percentage of SPX stocks above their 50-day simple moving average is 40%, with utilities, materials, energy, and staples the only sectors in which 50% or more shares are above the 50-day.
Talking technicals: The SPX has managed to stay above key technical support near 4,990 despite several intraday sell-offs recently. However, rallies keep bumping into resistance. Buying interest has dissipated each time the index nears 5,100, a level it hasn’t closed above in several weeks. That makes for a relatively narrow trading range that we’ve seen over the last week. Today’s jobs report might be a catalyst in one direction or another, but next week offers few data or earnings results that would likely move the needle too much. This could imply a range-bound market for the near future, with a lower support level near 4,800 and upward resistance still near the 50-day simple moving average that recently stood around 5,130.
Thursday in review:
Transportation shares helped lead major U.S. indexes higher Thursday after C.H. Robinson (CHRW) reported stronger-than-expected quarterly results, sending the freight logistics and trucking company’s stock up 12%. The Dow Jones Transportation Average ($DJT) jumped 2.5%. Semiconductors were also strong after Qualcomm (QCOM) advanced 9.7% in the wake of better-than-expected earnings. A slight drop in the benchmark U.S. 10-year Treasury note yield after Wednesday’s Fed meeting also helped stocks.
Internal affairs: Yesterday’s rally featured higher-than-average trading volume, while the number of advancing shares far outpaced declining ones. That could reflect growing positive conviction.
External affairs: Stocks in Hong Kong have had a week to remember, rising nearly 5% as Reuters reported there are signs of China stepping in to shore up the country’s economy. Reuters referred to a UBS report saying global hedge funds are growing increasingly bullish on China.
Early today, futures traders place 13% chances of a 25-basis-point rate cut at the FOMC’s June 11–12 meeting, rising to roughly 44% for the late-July meeting, based on the CME FedWatch Tool.
Overseas travel: International markets have been outperforming those in the United States, but investors seeking to add foreign stock exposure need to know the potential risks. Learn more in the latest WashingtonWise podcast featuring thoughts on the overseas landscape from Jeffrey Kleintop, Schwab’s chief global investment strategist.
CHART OF THE DAY: LEVELING OUT. Even before the Fed meeting, the 10-year Treasury note yield (TNX.CGI-candlesticks) showed signs of leveling out after hitting five-month highs above 4.7% in mid-April. It’s still far above lows from early 2024, and the S&P 500 Index (SPX-purple line) is far higher now than last fall when the yield was near current levels. This sets up possible valuation concerns, because high rates often compress earnings growth. Data sources: S&P Dow Jones Indices, Cboe.Chart source: thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results.
Ideas to mull as you trade or invest
Need a loan? Monday afternoon brings the Fed’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices. This once-obscure report marched to the front of the pack last year amid several high-profile bank failures led to concerns about a possible credit crunch. The crunch hasn’t happened yet, but many smaller banks continue to struggle amid high interest rates and weak small business and consumer confidence. The survey, due at 2 p.m. ET Monday, is important because it shows how much enthusiasm loan officers have for making loans to businesses and households. The previous survey from Q4 showed tightening lending standards and weaker demand for commercial and industrial loans of all sizes, as well as for commercial real estate loans. It also showed tighter lending standards on residential real estate and home equity lines of credit.
Why the Loan Survey matters: This type of churn in lender enthusiasm tends to go unnoticed if you only follow the largest hundred stocks. Small businesses don’t get the headlines of the mega caps but provide almost 50% of all private-sector jobs. Also, from 1995 through 2021 small businesses accounted for nearly 63% of net U.S. job creation, the government says. Loan officer standards help determine if those businesses can add capacity and employees, eventually influencing how consumers make key life decisions about buying homes and cars. Ultimately, tightening loan standards could slow overall economic growth, with possible implications for the labor market and major companies. With inflation stubborn and the Fed holding rates high throughout Q1, it’s likely Monday’s report will show continued caution from banks.
Oracle speaks: Monday’s trading could feel the impact from Berkshire Hathaway’s results over the weekend, so it might be worth checking what Warren Buffett says Saturday not only about his company, but the broader economy. The “Oracle of Omaha” is now a solo celebrity CEO at the firm after longtime partner Charlie Munger died at age 99 last November.
May 6: Expected earnings from Palantir (PLTR) and CNA Financial (CNA).
May 7: Expected earnings from Disney (DIS) and McKesson (MCK).
May 8: March wholesale inventories and expected earnings from Airbnb (ABNB).
May 9: Expected earnings from Hyatt Hotels (H) and Warner Bros. Discovery (WBD).
May 10: University of Michigan preliminary May Consumer Sentiment.
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