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The Data Will Direct the Direction of the Market

A cooling jobs market may give the Fed room to pause interest rate increases this month while keeping options open for another rate hike later in the year.

Non-farm payrolls rose more than expected after the prior two months were revised lower.  The unemployment rate rose to 3.8%, reflecting a pickup in labor force participation, and average hourly earnings posted the most tepid increase since February 2022.

The Labor Participation Rate (LPR) is at the highest level since February 2020.  An argument can be made that workers have finally exhausted COVID stimulus monies and must now return to the workforce.

A larger workforce potentially reduces wage inflation pressure under the simple guise of a greater supply of workers.  Moreover, a greater workforce enables the economy to maintain “escape velocity,” or the inflection point as to where the economy does not enter a recession.

Equities initially advanced off the data until a strong manufacturing report offset optimism with the jobs data signaling Federal Reserve is close to ending its hiking cycle.

The FRB has made it abundantly clear that monetary policy is entirely data dependent.

Bond yields rose and equities led by the mega size technologies declined.  Oil rose to the highest level since November as a monthslong effort by OPEC+ to reduce supplies gripped the physical market and China showed a new resolve to bolster its economy.

The economic calendar is comprised of several manufacturing data points, the ISM Services Index and the Biege Book or the compilation of economic statistics utilized at the upcoming Fed meeting.

Last night the foreign markets were mixed.  London was up 0.15%, Paris down 0.32% and Frankfurt down 0.18%.  China was down 0.71%, Japan up 0.30% and Hang Seng down 2.06%.

Dow and NASDAQ futures are flat and down 0.35%, respectively on interest rate fears.  The 10-year is off 11/32 to yield 4.23%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.