Speakers Bureau: Fed Chairman Powell, Other Central Bank Policy Makers, Could Set Tone Along with Robust ADP Jobs Data

Yields continued their climb to start the quarter Wednesday ahead of several Fed policy maker speeches, including one later today from Fed Chairman Powell. The ADP jobs report this morning showed growth well above expectations at 184,000, adding to worries about inflation as wage gains remained strong.

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Key Takeaways

  • Four Fed speakers featured today, including Fed Chairman Powell speaking on the economic outlook at midday

  • Friday’s Nonfarm Payrolls data loom, with consensus for March jobs growth near 200,000 but worries it could exceed

  • ADP private payrolls report showed surprising resilience in March, rising 184,000 and adding to pressure on bonds

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(Wednesday market open) On a day featuring four Federal Reserve speakers including Fed Chairman Jerome Powell, major indexes keep spinning their wheels to start the quarter thanks to rising Treasury yields that reflect mounting inflation concerns. Strong private payrolls data out this morning reinforced those worries.

The benchmark U.S. 10-year Treasury note yield closed above 4.36% yesterday for the first time since late November and inched up again early Wednesday. “Stronger-than-expected economic data have been the key driver of the move,” said Collin Martin, a director of fixed income strategy at the Schwab Center for Financial Research.

In addition, 4.36% appears to represent a long-term resistance point on the charts going back into last year, so the finish above it could carry additional technical significance.

Mega-cap tech stocks, often a direction setter for the entire market, traded mostly lower in premarket hours Wednesday. Tesla (TSLA) also slumped further after a nearly 5% decline yesterday following disappointing Q1 delivery data. Direction might be lacking Wednesday as investors hunker down ahead of Friday’s March Nonfarm Payrolls report. Another robust jobs reading might put more pressure on stocks as “good news is bad” trading returns to theaters near you.

Despite recent struggles, major indexes remain just below all-time highs. Investors might recall that Q1 started on a soft note, as well, and so did Q3 and Q4 of last year. The market quickly recovered in Q4 and Q1, though it might have helped that the S&P 500 index® (SPX) had far lower valuations than compared to now. Even so, yesterday’s selling appeared orderly and didn’t gain much steam after the initial downturn. It could indicate scarce selling interest below current levels, though buying interest also appears light.

The 20-day moving average of 5,179 for the SPX held up on a downward test Tuesday and could continue to represent an important support point, technically. The SPX hasn’t closed below its 20-day moving average since mid-January.

Futures based on SPX fell 0.25% shortly before the close of overnight trading and futures based on the Nasdaq-100® (NDX) declined 0.35%. Futures based on the Dow Jones Industrial Average® ($DJI) slipped 0.15%.

Morning rush

  • The 10-year U.S. Treasury yield (TNX) climbed two basis point to nearly 4.39% after fresh jobs data.
  • The U.S. Dollar Index ($DXY) is steady at 104.71, near its 2024 high.
  • The CBOE Volatility Index® (VIX) hit 14.93 this morning after climbing above 15 intraday yesterday for the first time since mid-March.
  • WTI Crude Oil (/CL) approached $86 per barrel this morning, still trading near last fall’s highs on Middle East tension and falling U.S. stockpiles.
  • Bitcoin (/BTC) is steady near $66,000.

Just in

Today’s ADP® National Employment Report showed March private payrolls climbing to 184,000, the biggest gain since last July, led by leisure and hospitality. The consensus was for 150,000, according to Briefing.com. The previous month got revised higher to 155,000 from 140,000. The numbers are above expectations and mesh with other recent data indicating economic strength, and yields pushed higher immediately after the news.

However, the ADP report and the government’s report due out this Friday haven’t moved in sync most of the time recently. Take February, for instance, when relatively weak ADP jobs growth preceded a robust Nonfarm Payrolls reading.

Parsing the data from ADP, goods-producing jobs rose 42,000 in March while services-providing ones climbed 142,000. Wages rose 5.1% year over year, the same as in February.

“The economy is doing well–and that’s the big problem for the bond market,” said Kathy Jones, chief fixed income strategist at Schwab. “It keeps the Fed on hold for longer waiting for either inflation to fall decisively or the job market to slow. Neither the inflation data nor the job data appear likely to provide a breakout moment in the near term and that’s likely to mean more choppy trading.”

What to watch

The parade of Fed speakers continues today with four on tap, including Chairman Powell at 12:10 p.m. ET. His speech, entitled “Economic Outlook,” sounds likely to have market implications. Later today, Fed Governor Adriana Kugler delivers a speech on “The Outlook for the U.S. Economy and Monetary Policy,” so by day’s end, investors could have a fresh perspective from leading Fed policymakers.

Friday’s U.S. March Nonfarm Payrolls report looms large and could help set the direction for Wall Street heading into next week’s March inflation data and the start of earnings season. Analysts expect the report to show jobs growth of 200,000, down from 275,000 in February, Briefing.com said. Average hourly earnings could rise 0.3% month over month and 4.1% year over year, compared with 0.1% and 4.3% in February, according to Trading Economics. Unemployment is seen at 3.8%, down from 3.9% the previous month.

“Friday’s labor market report could be a driver of yields later in the week,” Schwab’s Martin said. “Stronger than expected report could likely push back the timing of the first rate cut even more, pulling short-term yields higher.”

Stocks in spotlight

Rising yields often weigh more on interest rate-sensitive sectors like utilities, consumer discretionary, and real estate, and small caps. That was evident yesterday as shares of home builders like Lennar (LEN) and DR Horton (DHI) tumbled more than 3% and the Russell 2000® (RUT) small-cap index posted a steep decline for the second straight day. Highly leveraged companies that might need to refinance debt could come under pressure if yields keep climbing. Tech hasn’t been immune to rising rates, losing ground yesterday as semiconductor shares, including Nvidia (NVDA), lost some of their mojo.

One thing getting lost in all the rate worries is that strong economic growth generally supports earnings, and earnings ultimately drive the stock market. Reaction to solid data over the last week reverted to the “good is bad” mode of the last couple years. But with the SPX trading near all-time highs at an elevated forward price-to-earnings (P/E) ratio near 21, it will likely take an additional dose of earnings growth to reinforce ideas that current price levels aren’t too lofty.

Analysts expect 3.6% earnings growth in Q1 and 11% for the full year, according to FactSet. Energy and materials own the lowest earnings estimates for 2024, but the recent jump in commodity prices, if it persists, might help profits there. The flip side is that higher commodity prices can fuel inflation, making the Fed’s job harder and possibly squeezing consumer spending. That in turn could hurt profits for consumer discretionary and technology.

Tesla’s Q1 delivery and production numbers released Tuesday sagged well below estimates, reinforcing ideas that weaker U.S. EV demand and growing EV competition in China have the company in turbulent waters. The Q1 delivery total of 386,810 contrasted with the Bloomberg consensus for around 450,000, and fell sharply from 484,000 in Q4. It was also a year-over-year decline.

Stocks on the move:

  • Shares of UPS (UPS) climbed 1% early Wednesday after the company received an upgrade from Redburn Atlantic. The analyst said UPS is at, or close to, a trough in revenue, volume, margin, and share price levels. In addition, key macroeconomic data is showing signs of improvement.
  • Intel (INTC) fell 4% in premarket trading after disclosing deepening operating losses in its foundry business. The losses totaled $7 billion for the manufacturing unit in 2023, Reuters reported, worse than $5.2 billion the year before. The company is trying to expand its U.S. chip-building footprint, a $100 billion effort.
  • Retail company shares sank in premarket trading after a downgrade to several names by Gordon Haskett Research Advisors. Some of the names downgraded included Lowe’s (LOW), Dollar Tree (DLTR), and Costco (COST). The firm remains optimistic amid low unemployment levels, positive wage growth and improving inflation. However, there is also a “notable wall of worry,” including the recent uptick in gas prices, election risk, fewer holiday shopping days, and uncertainty on when home improvement activity will improve.
  • Disney (DIS) shares are flat following a Bloomberg report that the company is expected to win a proxy battle today.

Tuesday in review:

Retail, biotechnology, and regional bank shares were among the weakest performers Tuesday, leading a broad market slump in which declining stocks outnumbered advancers by a greater than three-to-one ratio. Energy companies, by contrast, extended recent strength behind an ongoing climb in crude. The Philadelphia Oil Service Index (OSX) advanced 2.1% and ended at a 5-½-month high.

Eye on the Fed

Early today, futures traders saw 98% odds the FOMC will keep rates unchanged following its April 30 to May 1 meeting, based on the CME FedWatch Tool. Chances of a quarter-point rate cut following the FOMC meeting in June are seen at around 58%, roughly unchanged from yesterday.

CHART OF THE DAY:  COMING AND GOING. The U.S. 10-year Treasury note yield (TNX-candlestick) closed at 4.365% on Tuesday, the highest since November 27 (red line on chart). On that day, the S&P 500 Index (SPX-purple line), closed at 4,550. It finished Tuesday near 5,205, up 14% from then. Rising yields throughout Q1 didn’t do much to derail the SPX, but the Q4 yield rally to nearly 5% seen in this chart helped fuel a major sell-off last fall that happened to gain steam with the 10-year yield near this same spot. Data Sources: Cboe, S&P Dow Jones Indices. Chart source: thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results. 

Thinking cap

Ideas to mull as you trade or invest

Read between the lines: Many investors worry that Friday’s Nonfarm Payrolls report could show another hotter-than-expected result, pushing back ideas for a rate cut. Even a weak March jobs report, or one with downward revisions, wouldn’t tell the whole story the Fed wants to hear. More likely, Powell and company want to see several months of slower jobs growth and rising jobless claims before pressing the rate cut button. They’re running low on time if they want to get started by June. When the FOMC gathers that month, they’ll have three more jobs reports to peruse than they do now. The best-case scenario Friday for anyone wanting a June rate cut, and one that might slow the yield rally, would be a downward revision to February’s 275,000 headline number accompanied by lower than 200,000 growth in March. A light read would be surprising, however, as weekly jobless claims remained near historic lows last month. Investors still pencil in better than 50% probability of the Fed cutting rates in June, and a strong or weak jobs report on Friday is a single element in the long run-up to that decision.

Earnings drill: Health care, materials, and energy all could weigh on overall Q1 EPS performance, even with strong contributions from utilities, info tech, and communication services, according to the latest FactSet estimates. For the full year, analysts expect 11% EPS growth from S&P 500 companies, but any failure by major companies to live up to Q1 expectations could start to bring full-year estimates down, making the SPX’s current historically high P/E ratio of around 21 look tougher to sustain. Though the market’s improved breadth lately speaks to investor hopes of better performance from value and cyclical stocks, analysts still expect tech and communication services stocks to lead earnings growth in 2024. That means the same group of mega caps needs to continue the heavy lifting, or smaller and less tech-oriented companies need to find ways to share the load and keep the market from looking top-heavy by mid-year.

Talking technicals: The last time the U.S. 10-year Treasury note yield closed above 4.36%, on November 27, the SPX closed at 4,550. The SPX finished Tuesday up 14% from then. Rising yields throughout Q1 didn’t derail the SPX, but going farther back, the Q4 SPX sell-off picked up steam last October when the 10-year yield visited this same area on a rally to nearly 5%. “Technically the SPX is right at its 20-day Simple Moving Average (SMA), which the index has bounced off of around eight to 10 times this year,” said Nathan Peterson, director of derivatives research at the Schwab Center for Financial Research. “Will this be another ‘buy the dip’ moment in time? I think the answer likely depends on whether yields continue to push higher or pull back in the coming days.”


April 4: Expected earnings from Conagra (CAG).

April 5: March Nonfarm Payrolls

April 8: No major earnings or data expected.

April 9: No major earnings or data expected.

April 10: March Consumer Price Index (CPI) and March Core CPI, February Wholesale Inventories, and expected earnings from Delta (DAL).


Key Takeaways

  • Four Fed speakers featured today, including Fed Chairman Powell speaking on the economic outlook at midday

  • Friday’s Nonfarm Payrolls data loom, with consensus for March jobs growth near 200,000 but worries it could exceed

  • ADP private payrolls report showed surprising resilience in March, rising 184,000 and adding to pressure on bonds

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