Mega-Cap Stocks Driving Timid Price Action Following Holiday

Coming off the holiday weekend, the stock market looks poised for a lower open. Currently, the S&P 500 futures are down 23 points and are trading 0.6% below fair value, the Nasdaq 100 futures are down 101 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 124 points and are trading 0.4% below fair value.

Major European markets remained closed for the Easter holiday, as did Hong Kong’s Hang Seng Index, so it is fair to say that trading volumes are thinner than usual.

The timid disposition of the futures market relates in large part to some weakness among the mega-cap stocks this morning. Tesla (TSLA) is a standout in that regard, trading down 2.6% following a Reuters report that the company has cut prices again in the U.S. The latest price cut is the fifth cut since January.

Apple (AAPL), NVIDIA (NVDA), and Alphabet (GOOG) are all down more than 1.0% in pre-market trading. A Q1 revenue warning out of Taiwan Semiconductor Manufacturing (TSM) and IDC highlighting “excess inventory and poor demand” persisting for the PC industry in Q1 have helped rein in some of these stocks along with some general trepidation ahead of the Q1 earnings reporting period that gets going this Friday with several major banks reporting their results.

For added thoughts on the coming reporting period, be sure to read The Big Picture column, which discusses the importance of the guidance coming out of the reports for a market trading at a premium valuation.

There isn’t a lot of corporate news to digest this morning, but one item causing a stir is a Wall Street Journal report that Exxon (XOM) is in discussions to acquire Pioneer Natural Resources (PXD).

Otherwise, there is some retroactive attention on the March employment report that was released on Friday when the stock market was closed.

The key takeaway from that report is that the employment situation in March remained solid with the unemployment rate flirting with a record-low level; however, the deceleration seen in the pace of job growth and average hourly earnings will be viewed as a signal that the labor market is losing some steam in a manner to the Fed’s liking.

The latter point notwithstanding, the fed funds futures market is still biased toward another rate hike at the May FOMC meeting. According to the CME FedWatch Tool, there is a 66.0% probability of the Fed agreeing to another 25 basis points increase in the target range for the fed funds rate to 5.00-5.25%. That compares to 71.2% on Friday and 57.2% a week ago.

Notable headlines from the March Employment Situation Report released last Friday:

• March nonfarm payrolls increased by 236,000 (Briefing.com consensus 239,000). The 3-month average for total nonfarm payrolls dipped to 345,000 from 346,000. February nonfarm payrolls revised to 326,000 from 311,000. January nonfarm payrolls revised to 472,000 from 504,000.
• March private sector payrolls increased by 189,000 (Briefing.com consensus 213,000). February private sector payrolls revised to 266,000 from 265,000. January private sector payrolls revised to 353,000 from 386,000.
• March unemployment rate was 3.5% (Briefing.com consensus 3.6%), versus 3.6% in February. Persons unemployed for 27 weeks or more accounted for 18.9% of the unemployed versus 17.6% in February. The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 6.7% versus 6.8% in February.
• March average hourly earnings were up 0.3% (Briefing.com consensus 0.3%) versus 0.2% in February. Over the last 12 months, average hourly earnings have risen 4.2%, versus 4.6% for the 12 months ending in February.
• The average workweek in March was 34.4 hours (Briefing.com consensus 34.5), versus 34.5 hours in February. Manufacturing workweek was unchanged at 40.3 hours. Factory overtime was unchanged at 3.0 hours.
• The labor force participation rate increased to 62.6% from 62.5% in February.
• The employment-population ratio increased to 60.4% from 60.2%.

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Originally Posted April 10, 2023 – Mega-cap stocks driving timid price action following holiday