What to Expect for the Markets Next Week

The bruising week for U.S. stock markets came to a merciful end, but not before the S&P 500 shed 2%, ending a two month rally that added 19% to the broader market. Stocks recovered from early losses Friday morning, but still closed in the red.

The Labor Department reported Friday that only 20,000 jobs were added last month. Economists had forecast 180,000. On the bright side, the unemployment rate fell to 3.8% while average hourly wages grew at annual rate of 3.4%. Strong numbers, to be sure; however, the headline number – that the U.S. economy only added 20,000 jobs – is what gets the most attention. But it may miss the point.

The report’s calculation of the number of jobs added in a given month is messy to begin with. The data is based off of a survey of about 150,000 businesses and government agencies by the Labor Dept., which asks about their hiring during the past month. The Department then extrapolates from this data the headline number of total jobs added. It’s not exact by any means. It is also revised at least once, often twice, in subsequent months as the Bureau of Labor Statistics synthesizes more data.

The number of jobs added can vary widely from month to month as well. In January, for example, the U.S. economy added 304,000 jobs. On a three-month average, payrolls have grown by 186,000, which is pretty strong for an economy that is strong, but slowing down. 

Wage growth, which has been stubbornly slow for the past several decades, has been improving. That’s obviously good for workers, but it’s also a positive for consumer confidence. Average annual earnings grew 0.4% from January to February and 3.4% year-over-year. Here’s a monthly chart going back ten years of wage growth, courtesy of the St. Louis Federal Reserve.

 We are at the tail end of earnings season and next week we will hear results from companies including Oracle (ORCL) and Williams Sonoma (WSM). Neither of them or the roughly 200 companies set to report results are likely to move the markets. 

Economic reports and any indications of progress on the trade talks could. We know about the former, but can only guess on the latter. 

It’s a big week for the consumer as we will get reports on retail sales for January and Business inventories for December. On Thursday we’ll get retail sales for February. The government shutdown delayed these reports last month, so the data is old, but it will tell us how strong or weak retail sales were following the market correction in December.

 On Tuesday, we’ll get the Consumer Price Index and Core CPI data for February. These are the most telling reports on inflation, one of the Federal Reserve’s key concerns. Inflation is very tame right now and has the potential to head the other direction towards stagflation or deflation, which would not be a good sign for the U.S. Economy. The Federal Reserve likes to see inflation around 2 percent which is a sign that producers can raise prices in line with demand, and consumers can afford those hikes because they are earning a little bit more. Friday’s jobs report shows that wages are increasing, but we’ll find out if the consumer is putting that extra money to work.

Speaking of the Federal Reserve, FOMC Chair Jerome Powell will be interviewed on CBS 60 Minutes Sunday evening. Get your popcorn!

On Wednesday we’ll find out of companies were able to raise their prices when we get the Producer Price Index for February. Is demand strong enough so that they can charge more for their products? 

Finally, on Friday, we’ll get Consumer Sentiment for March. We’ll be one month from the U.S. tax deadline of April 15th, and early signs show that those expecting tax refunds are getting much smaller refunds than they expected. Funny how that works.

March 9th is the 10 year anniversary of the S&P 500 hitting a bottom on the heels of the financial crisis before going on a bull run of historical proportions. Some may argue that the Bull died in 2015 or late 2018, but that argument is for a different time. It has still been a historic climb for the broad market that has added trillions of dollars of wealth to those who have stayed in it for a decade. But, it has been anything but a straight line up. 

Our Chart Master, James Chen, CMT., put together this chart which shows some of the key moments of the past decade that nearly brought the Bull to its knees, and propelled it to record highs. 

We have no idea what the next decade has in store for us, but we do know one thing… It will always be interesting.