Wall Street investors are preparing for their own version of Hell Week, with a flurry of jobs data due in the next few days that could easily lead to violent market swings.
The unwavering resiliency of the American job market is one of, if not the, most pressing sources of concern in today’s economy. Officials at the Federal Reserve have stated on multiple occasions that they expect elevated inflation rates will remain sticky until employment figures and wage rises decline. It implies the Fed’s already painful rate hikes will almost certainly continue until the labor market cools.
Yet it’s still hot.
To cool the economy, the Federal Reserve boosted interest rates from near zero to a range of 4.5% to 4.75% in just one year. Nonetheless, job growth has exceeded estimates for the past ten months. The labor market is stronger than ever: the United States added a staggering 517,000 jobs in January, lowering unemployment to its lowest level since 1969.
Despite the fact that large layoffs at corporations such as Facebook, Google, Goldman Sachs, Intel, and Microsoft dominate the news, job opportunities outnumber job applicants by nearly two to one.
The Fed’s reaction has been to keep going.
“More policy tightening, sustained over time, will likely be required to put this episode of high inflation behind us,” San Francisco Fed President Mary Daly said on Saturday at Princeton University. “Without a significant increase in the proportion of working-age adults looking for work or a significant change in immigration flows, labor force participation will continue to fall and worker shortages will persist, pushing up wages and eventually prices, at least in the near and medium term,” she added.
Last Thursday, Fed Governor Christopher Waller repeated Daly’s sentiments.
“Latest data imply that consumer spending isn’t slowing as much as I predicted, that the labor market is still running unsustainable hot, and that inflation isn’t falling as quickly as I thought,” he added.
“If those data reports continue to come in too hot, the policy goal range will have to be hiked even higher this year to guarantee that we do not lose the momentum that was in place before to the release of the January data.” Waller explained why this flood of job data is so significant to investors. Further Fed-induced suffering is likely if the labor market remains robust.
What to expect: On Wednesday, ADP’s private payroll report for February and the JOLTS job vacancies, hires, and quits report for January will be released. Challenger, Gray & Christmas will reveal their February job reduction numbers on Thursday, and the Labor Department’s monthly employment data will be released on Friday.
Experts predict that the economy will add 200,000 jobs in February, a lower number than in January but still above average. According to a Refinitiv consensus survey, the unemployment rate will remain unchanged at 3.4%.
Because of the expected lack of fluctuation in the unemployment rate, some experts have raised their economic growth estimates.
“We’re in the muck,” said Josh Hirt, senior US economist at Vanguard. “Activity has slowed in the most interest rate-sensitive sectors of the economy, but core areas are still displaying resilience. We are in a transition period in which the impact of interest rates has not yet been felt throughout the economy.“
Hirt predicts that the unemployment rate will rise from its current 54-year low, albeit slowly and moderately, to roughly 4.5% to 5% by the end of the year.
This week, Wall Street and the Beltway will collide as crucial monetary and fiscal policy events take over the Capitol.
What’s going on: Fed Chairman Jerome Powell will appear before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
Powell will deliver his “Semiannual Monetary Policy Report to Congress,” followed by hours of questioning from lawmakers. Anticipate some spicier back-and-forth than at press briefings following policy decisions: Some lawmakers are critical of the Fed’s current rate hike schedule.
According to a preview of the report, the Fed chair intends to stress that more needs to be done to reduce annual inflation to the Fed’s target of 2%.
President Joe Biden is slated to propose his annual budget to Lawmakers on Thursday. The plan comes at a time when Congress is deeply divided over the debt ceiling, which is the maximum amount the federal government may borrow. Republicans, who control the House, have stated that they will not lift the debt ceiling until significant cuts in federal spending are made. The White House has refused to engage in negotiations.
The president’s budget is often utilized by Congress as a guideline to help determine spending objectives for the coming year. Wall Street investors will almost certainly read the material in order to grasp what market-changing debates are on the horizon.
Biden has stated that raising taxes on the ultra-wealthy will help offset rising expenses for Medicare, Social Security, and health care. Last year, the president proposed a “billionaire” tax. Other Biden proposals, such as higher capital gains and stock repurchase taxes, have roiled Wall Street.
Monday: January factory orders in the United States; Grindr profits.
Tuesday: Federal Reserve Chair Jerome Powell is due to appear before the Joint Economic Committee on the economy and monetary policy; earnings from Dick’s Sporting Goods, Caseys General Stores, Squarespace, and Dole.
Wednesday: European Central Bank President Christine Lagarde will speak, February ADP Nonfarm Employment Change, Federal Reserve Chair Jerome Powell is expected to testify before the Joint Economic Committee on the economic outlook and monetary policy, February JOLTs Job Openings, and earnings from Brown Forman, Campbell Soup, and MongoDB.
Thursday: February Challenger Job Cuts, First Jobless Claims in the United States; results from Ulta Beauty, DocuSign, BJ’s Wholesale Club, and The Gap.
Friday: Nonfarm payrolls for February; earnings from Douglas Elliman.
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