Stocks Gain as US Labor Strength Signals a Strong Economy

The S&P 500 Index ($SPX) (SPY) this morning is up +0.88%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.58%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.15%. 

Stock indexes this morning are moderately higher on optimism that strength in the US economy will continue to fuel consumer spending and corporate profits.  Stocks are climbing even after today’s stronger-than-expected US payroll report increases the chances of higher interest rates for longer.  An easing of wage pressures is also supportive for stocks after US March average hourly earnings eased to +4.1% y/y, the smallest pace of increase in 2-3/4 years.   

A negative factor for stocks is today’s jump in T-note yields after US payrolls rose well above expectations. March nonfarm payrolls rose +303,000, well above expectations and by the most in 10 months, bolstering expectations that the Fed will be in no hurry to cut interest rates. 

US Mar nonfarm payrolls rose +303,000, stronger than expectations of +214,000 and the biggest increase in 10 months.  The Mar unemployment rate fell -0.1 to 3.8%, right on expectations.

US Mar average hourly earnings eased to +4.1% y/y from +4.3% y/y in Feb, right on expectations and the slowest pace of increase in 2-3/4 years.

Comments today from Dallas Fed President Logan boosted bond yields and were negative for stocks when she said “it’s much too soon” to think about cutting interest rates on concern that inflation progress could stall out and that price growth could fail to cool “in a timely way” to the Fed’s 2% target.

The markets are discounting the chances for a -25 bp rate cut at 6% for the next FOMC meeting on April 30-May 1 and 57% for the following meeting on June 11-12.

Overseas stock markets today are lower.  The Euro Stoxx 50 fell to a 2-week low and is down -1.35%. China's Shanghai Composite was closed for the Tomb Sweeping Day holiday.  Japan's Nikkei Stock Index fell to a 3-week low and closed down -1.96%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -12 ticks.  The 10-year T-note yield is up +5.2 bp to 4.362%. June T-note prices retreated this morning on the larger-than-expected increase in US Mar nonfarm payrolls, reinforcing speculation the Fed will be in no hurry to cut interest rates.  Also, an increase in inflation expectations is undercutting T-note prices as the 10-year breakeven inflation rate today rose to a 4-3/4 month high of 2.399%.  T-notes maintained moderate losses on hawkish comments from Dallas Fed President Logan, who said it’s “much too soon” to think about cutting interest rates.

T-notes garnered some support from easing US wage pressures after Mar average hourly earnings eased to +4.1% y/y, the smallest pace of increase in 2-3/4 years.

European government bond yields today are moving higher.  The 10-year German bund yield is up +2.2 bp to 2.383%.  The 10-year UK gilt yield is up +4.0 bp to 4.061%.

Eurozone Feb retail sales fell -0.5% m/m, weaker than expectations of -0.4% m/m.

German Feb factory orders rose +0.2% m/m, weaker than expectations of +0.7% m/m.

The German Feb import price index fell -0.2% m/m and -4.9% y/y, weaker than expectations of unchanged m/m and -4.6% y/y.

US Stock Movers

Agilent (A) is up more than +2% after Stifel upgraded the stock to buy from hold with a price target of $163. 

Conagra Brands (CAG) is up more than +2% after Barclays raised its price target on the stock to $34 from $31.

Eaton Corp Plc (ETN) is up more than +2% after RBC Capital Markets upgraded the stock to outperform from sector perform with a price target of $371.

Uber Technologies (UBER) is up more than +3% after Jeffries raised its price target on the stock to $100 from $95.

Chip stocks are gaining today and supporting gains in the technology sector.  Advanced Micro Devices (AMD), ASML Holding NV (ASML), and Applied Materials (AMAT) are up more than +2%.  Also, Nvidia (NVDA), Broadcom (AVGO), KLA Corp (KLAC), and Lam Research (LRCX) are up more than +1%. 

Shockwave Medical (SWAV) is up more than +1% after Johnson & Johnson agreed to acquire the company for $13.1 billion of $335 a share. 

Krispy Kreme (DNUT) is up more than +3% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $20. 

Vertiv Holdings (VRT) is up more than +4% after Oppenheimer initiated coverage on the stock with a recommendation of outperform and a price target of $96.

Snowflake (SNOW) is up more than +2% after Rosenblatt Securities upgraded the stock to buy from neutral with a price target of $185. 

Western Digital (WDC) is up more than +1% after Rosenblatt Securities upgraded the stock to buy from neutral with a price target of $115.

Lamb Weston Holdings (LW) is down more than -2% after Citigroup cut its price target on the stock to $106 from $132.

Intel (INTC) is down more than -2% to lead losers in the Dow Jones Industrials and Nasdaq 100 on negative carryover from Wednesday when it gave a downbeat outlook for its factory operations. 

Telecommunication stocks are under pressure today. AT&T (T), Verizon Communications (VZ), and Charter Communications (CHTR) are down more than -1%.

CCC Intelligent Solutions (CCCS) is down more than -1% after announcing a proposed secondary offering of 20 million shares of its common stock.

Earnings Reports (4/5/2024)

CXApp Inc (CXAI), DZS Inc (DZSI), Greenbrier Cos Inc/The (GBX), Maxeon Solar Technologies Ltd (MAXN).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.