Market Overview

More Earnings Ahead, But Monthly Jobs Report Is Gorilla In The Room

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After two feverish weeks of earnings reports and a couple of central bank meetings, key data this coming Friday may give an even better picture of the economy.

Last week was a difficult one on the earnings front, led by Apple Inc. (NASDAQ: AAPL)'s sell-off, but there was some hope from Amazon.com Inc. (NASDAQ: AMZN) strong earnings on Thursday. More retail earnings loom this coming week, giving a better sense of where the consumer lies. There’s very little inflationary pressure on consumers, judging from government data, but this coming Friday the market gets the truest picture of all on what’s affecting consumers: The monthly jobs report.

The March jobs report was a solid one, with U.S. employers adding 215,000 jobs and unemployment ticking up a notch to 5% due to more people joining the labor force. Wages rose 2.3% year over year. Throughout April, weekly jobless claims have been at very low levels, the lowest since 1973, so does that point to even more robust jobs growth in the April jobs report? The market will find out Friday. According to MarketWatch, estimates are for payrolls to rise by 200,000 in April, with unemployment remaining at 5%.

The S&P 500 Index (SPX) was threatening technical support at 2050 by midday Friday, but the recent market losses are nothing to panic about, especially if the market can hold the 2050 level. It’s important to put things into perspective and look at where the market has been the last two months, soaring from mid-February lows near 1810.

U.S. 10-year Treasury yields climbed above 1.9% early last week and looked like they might test the key 2% level, but then fell back and were trading at 1.85% by midday Friday. Watch the coming week’s action to see if rates can get above 2%. There’s some fixed income news, with auctions announcements scheduled for the coming week, but the jobs report is likely to be a bigger focus. Both the U.S. Fed and the Bank of Japan met last week, and both kept rates unchanged.

Auto sales data are scheduled for Tuesday, coming on the back of good earnings from automakers. But the pace of auto sales over the last year may be tough to keep up.

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Earnings Season Over? Not Exactly: It may be tempting to think that because most of the big names have already reported, earnings season is behind. But that’s not the case. This coming week features earnings reports from a number of major companies, and might help investors get an even better sense of where things stand in sectors such as energy, biotech and consumer staples. Some of the key earnings reports coming up include: Illumina (ILMN), Archer Daniels Midland (ADM), Priceline (PCLN), Kraft Heinz (KHC), Tesla (TSLA), Whole Foods (WFM), and Kellogg (K).

Rate Hikes in an Election Year? Expectations for a U.S. rate hike got pushed back farther this week, according to CME Fed Funds futures. As of midday Friday, the futures market forecast just a 15% chance of a June rate hike, and the first time chances for a hike approach 50% is in September. Friday’s personal consumption expenditures (PCE) price index for March, excluding food and energy, was rather tame at 0.1%, and that’s a number the Fed watches closely for signs of inflation. Core PCE is up just 1.6% year over year, below the Fed’s 2% inflation target. Though the Fed’s September meeting comes just about six weeks before the U.S. Presidential election, it’s not unheard of for the Fed to make a rate move during an election campaign, and Fed Chair Janet Yellen said in March that politics wouldn’t influence the Fed’s decision. The last time the Fed raised rates at the height of a Presidential campaign was in 2004, when it raised the target rate to 1.75% from 1.5% at its September meeting.

Move Over Energy, There’s a New Worst-Performing Sector: Earlier this year, the energy sector was down more than 10% for 2016 as oil prices descended to decade-lows. But now the energy sector has recovered all of its 2016 losses and more, and information technology has become the year’s worst-performing sector, down 2.6% year to date going into Friday’s session. The sector has suffered two-straight weeks of losses as major companies such as Alphabet Inc (NASDAQ: GOOG), Apple and Microsoft disappointed with their earnings results. Aside from Facebook Inc (NASDAQ: FB), social media earnings have been disappointing.

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