Tepid Jobs Growth In March Comes After Big February Gains

Monthly jobs growth just went from terrific to tepid, though the overall trend remains pretty positive.

Employment barely climbed in March, the government said Friday, with job growth rising just 103,000 after February’s sharp gains. It marked a major reversal from growth of more than 300,000 in February, marking the lightest gain since September and coming in well under the 175,000 expected by Wall Street analysts. The market will have to wrestle with this number today even as more trade fears continue to keep the overall mood slightly nervous.

In addition to the monthly figure, the government revised January and February employment growth numbers, now down 50,000 from where they had stood last month. Even so, employment growth is averaging just over 200,000 over the last three months even with Friday’s disappointing March figure, meaning the overall situation remains pretty strong. Keep that in mind if there’s bearish talk today about a weaker jobs picture.

Even as job growth stepped back in March, wages rose 0.3 percent month-over-month and 2.7 percent year-over-year. That’s barely higher than the 2.6 percent growth the previous month, but could make people a little nervous amid concerns that tight employment could be causing wages to heat up and possibly usher in a more inflationary environment. That said, the 2.7 percent year-over-year increase doesn’t seem like enough to really ignite inflation fears the way January’s figure of close to 3 percent did. Keep a close eye on this one in the months ahead, and also keep in mind that wage growth is generally a positive thing, putting more money in peoples’ pockets and potentially putting more traction into the economy. Inflation remains below the Fed’s 2 percent target.

Another metric worth watching is labor force participation, which ticked down to 62.9 percent in March from 63 percent in February. That’s not really a major change, but could seem disappointing to investors who’d been hoping the rate would start a trend higher. The rate was in the mid-60s back in the 1990s.

From a sector standpoint, there really wasn’t much to write home about. Manufacturing jobs rose 22,000, with all of that gain coming in the durable goods area, the government said. Healthcare, mining, and business and professional services were other growth areas. However, there wasn’t anything here close to the broad cross-industry growth seen in February that put a positive tone into the market.

The jobs report appeared to add more weight to a market that was already struggling with the impact of more tough trade talk out of Washington and a rejoinder from China overnight.

Thursday had seen a more bullish tone in the market — arguably the most bullish in a while, although that changed after the session when President Trump threatened additional tariffs against China. Things moved in concert Thursday as investors sold bonds and bought pretty much across every sector in an impressive performance that carried through from Wednesday’s late rally. The big banks did well as bond yields rose, but so did retailers and most of the tech sector, aside from semiconductors. Consumer staples and discretionary also performed strongly, and have helped drive the market recently. The FAANG stocks continued to claw back.

Also, some of the big stocks potentially with tariff targets painted on them, including Caterpillar (CAT) and Boeing (BA), started to do better on Thursday before President Trump again upped the ante with China after the market closed, helping send BA shares back down in pre-market trading. There’s a nervous feeling on Wall Street, and it doesn’t look like people are jumping back in the way they did when stocks dipped last year (see below). The nerves seemed to be amplified as the Dow Jones Industrial Average ($DJI) took another triple-digit plunge in pre-market trading overnight Thursday. Most European and Asian markets also retreated.

Volatility flagged a bit Thursday before the trade war fears resumed. By midday, VIX had fallen below 20 for the first time this month before topping 20 again early Friday. The trade war fears could continue to keep volatility elevated for a while.

One thing to keep in mind is that the S&P 500 Index (SPX) seemed to bump into a barrier Thursday at the key technical resistance level of 2670. In fact, it pulled back pretty quickly in the last minutes of Thursday’s session after an approach late in the day. The test Friday could be whether the SPX can move convincingly through this mark, which might suggest even more positive spirits in the coming week.

The market’s firm bounce late Wednesday and Thursday took the SPX back above its 200-day moving average. It had fallen below that earlier this week for the first time in many a month. When the SPX is below its 200-day moving average, history shows it tends to have lower returns, though past isn’t necessarily precedent. Once it gets above that important technical level, a “buy the dip” mentality might be more likely to re-assert itself, according to Briefing.com. The 200-day moving average is just under 2600 now.

What’s notable about the recent sell-off is that once again the SPX failed to take out the early February low of 2532.69, though it came within about 20 points. More weakness continues to be possible, but from a technical standpoint, the SPX’s bounce after approaching that low could look positive to those who watch the charts.

FIGURE 1: BACK IN SYNC. A couple of times recently when stocks rallied, 10-year bond yields (candlestick chart) didn’t seem to follow suit. That changed Thursday, when the S&P 500 (SPX, purple line), scurried higher and bond prices fell, raising yields sharply. That’s more along the lines of how markets traditionally function, though nothing is in stone. It also speaks to the possibility that investors feel more bullish, and don’t see the need to buy fixed income during a stock rally. Data source: S&P Dow Jones Indices, CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Welcome to Missouri, Wall Street

They call Missouri the “Show Me State.” Well, these days, we’re in a “Show Me” market. Last year, people seemed to jump in to buy most of the dips, and discounted much of the negative news. This year, there’s a lot more caution and a sense of nervousness as stocks move higher. For instance, volume on Thursday was good, but not heavy. That could mean a lot of investors are still on the sidelines, waiting for a sense of whether this upward move has more staying power than other recent ones did. In other words, “Show me!”

One reason many investors might seem skittish is fear of another shoe dropping in the trade battle between Washington and China. The volatility on political headlines is very high right now and that conversation isn’t going to go away. That’s arguably why VIX is at the current level. This is a nervous up-market, but sometimes these types of up-markets tend to last longer.

Here For the Benefits

Buy-and-hold investors are reeling in a big catch in terms of  dividends, as companies sent investors a record amount of dividend payments in Q1 following passage of the tax reform bill. During Q1, S&P 500 companies set a record with dividend payments of $12.79 a share, according to S&P Dow Jones Indices. Investors received $109.2 billion in the quarter, up from $100.9 billion a year earlier. At this point, 415 of the 500 S&P 500 companies, or 82.2 percent, pay a dividend, and all 30 members of the Dow Jones Industrial Average ($DJI) do so as well. If you’re a long-term investor, dividend-paying stocks can sometimes provide a bit of protection in case of inflation, something to keep in mind during strong economic times like these.

Earnings Around the Corner

The last jobs report of the quarter reminds us that earnings season, presumably like spring weather in the Midwest, is on the near horizon. Last year, S&P 500 companies posted 11.9 percent growth in earnings per share, but that’s expected to rise to 18.6 percent this year, according to S&P Global Market Intelligence. For Q1, the firm sees earnings growth at 16.6 percent, led by double-digit gains in eight of the 11 SPX sectors. Energy is expected to head the pack, followed by financials, info tech, and telecom, with only real estate expected to post quarterly losses, S&P Global Market Intelligence said.

The pattern we’ve seen in recent quarters is that outside news sometimes takes a back seat during earnings season, and that’s when investors start focusing on what truly matters to the market. If company earnings are fruitful, that can help push back a lot of other less happy news. It also gives the market something to hang its hat on each day besides the latest geopolitical rumors or Washington tweets. Keep an eye on tech earnings, in particular, and listen to conference calls to get CEOs’ input on the economy and consumer demand. More on this next week.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.