Recent economic data has prompted investors to hedge against the rising likelihood of a recession.
In February 2023, there were 9.9 million job openings, which was the lowest level since May 2021 and below market estimates of 10.4 million, suggesting that the labor market may have begun to weaken.
Still, in February, new orders for U.S. manufactured goods fell for the second consecutive month by 0.7% compared to the previous month, following a revised 2.1% loss in January and falling short of market estimates of a 0.5% loss. This comes after the ISM Manufacturing PMI for March was 46.3, down 1.4 points from the previous month and below estimates of 47.5.
Benzinga's take: The number of available vacancies is an important indicator that the Federal Reserve monitors in connection to the number of unemployed people in order to measure labor market tightness. A tight labor market might contribute to wage inflation.
According to the most recent data on job openings, there are presently 1.65 jobs available for every jobless person in the United States, still indicating a tight labor market, but lower than the ratio of almost two seen in 2022. This figure will need to be revised on Friday, when we receive statistics from nonfarm payrolls and the March unemployment rate.
Market Reactions: The Recession Playbook
Market reactions in Tuesday's session following the release of daily economic data indicate that investors are increasingly pricing in the possibility of an economic downturn.
Investors have flocked to asset safe havens, with treasuries appreciating in the face of falling yields, and gold rallying against a plunging U.S. dollar.
Market price actions on April 4, 2023 – Chart: TradingView
The iShares 20+ Year Treasury Bond ETF TLT rose 1.4% on the day, and the SPDR Gold Trust ETF GLD gained 2%. The U.S. Dollar Index fell below the 102 level, nearing early-February lows.
In the stock market, the small-cap segment saw the biggest losses, with the Russell 2000 index, tracked by iShares Russell 2000 ETF IWM, down 2.4% on the day. Both the S&P 500 and the Dow Jones Industrial Average index, which are tracked by the SPDR S&P 500 Trust ETF SPY and the SPDR Dow Jones Industrial Average ETF DIA, fell by 0.7%. The Nasdaq 100 index, which is tracked by the Invesco QQQ Trust, Series 1 QQQ, was 0.8% lower.
Traders trimmed bets for a Fed hike in May, and now assign a greater chance of a rate hold option (60%).
At the sector level, cyclicals sold off, with Energy Select Sector SPDR Fund XLE, Industrial Select Sector SPDR Fund XLI and Materials Select Sector SPDR Fund XLM, all falling by at least 1% on the day.
Defensive sectors outperformed, with Consumer Staples Select Sector SPDR Fund XLP, Utilities Select Sector SPDR Fund XLU and Health Care Select Sector SPDR Fund XLV all in the green.
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