Strong nonfarm payrolls growth marches on in March

It has been a topsy-turvy week so far for the stock market, which looked like it had a grip on things yesterday before it slipped on geopolitical and monetary policy headlines. Actually, it did more than slip. The S&P 500 had been up as much as 0.9% but it closed with a 1.2% loss.

One reported catalyst for the stark reversal in the afternoon session was Minneapolis Fed President Kashkari (non-FOMC voter) suggesting the Fed might not cut rates at all this year if the inflation decline stalls. The more impactful catalyst — based on intermarket dynamics that saw oil prices rise, bond yields fall, the dollar increase, and the CBOE Volatility Index spike — were reports that Iran might be readying to strike Israel (or its interests) in some way in response to Israel’s attack on Iran’s interests in Damascus.

Those concerns didn’t seem to weigh too heavily on sentiment overnight. Granted foreign markets recoiled in response to Wall Street’s showing on Thursday, but U.S. equity futures were in rebound gear ahead of the March employment report at 8:30 a.m. ET.

They experienced some knee-jerk volatility in the wake of a report that was stronger than expected and sent Treasury yields higher, but the prevailing trade at this juncture remains consistent with a rebound gear.

Currently, the S&P 500 futures are up 16 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 73 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 77 points and are trading 0.2% above fair value. The 2-yr note yield, at 4.66% in front of the report, is at 4.72% now, and the 10-yr note yield, at 4.32% in front of the report, is at 4.40% now.

The headlines from that report were all good economically speaking. Nonfarm payrolls increased by 303,000, the unemployment rate dipped to 3.8%, average hourly earnings were up 0.3%, and the average workweek increased to 34.4 hours.

The key takeaway from the report is that it continued to support a solid earnings growth outlook even if it didn’t necessarily support the outlook for the Fed to cut rates soon.

According to the CME FedWatch Tool, there is a 56.7% probability of a 25-basis points rate cut at the June FOMC meeting versus 65.9% yesterday.

 Notable headlines from the March Employment Situation Report:

• March nonfarm payrolls increased by 303,000 (Briefing.com consensus 200,000). The 3-month average for total nonfarm payrolls increased to 276,000 from 272,000. February nonfarm payrolls revised to 270,000 from 275,000. January nonfarm payrolls revised to 256,000 from 229,000.
• March private sector payrolls increased by 232,000 (Briefing.com consensus 160,000). February private sector payrolls revised to 207,000 from 223,000. January private sector payrolls revised to 196,000 from 177,000.
• March unemployment rate was 3.8% (Briefing.com consensus 3.8%), versus 3.9% in February. Persons unemployed for 27 weeks or more accounted for 19.5% of the unemployed versus 18.7% in February. The U6 unemployment rate, which accounts for unemployed and underemployed workers, held steady at 7.3%.
• March average hourly earnings were up 0.3% (Briefing.com consensus 0.3%) versus an upwardly revised 0.2% (from 0.1%) in February. Over the last 12 months, average hourly earnings have risen 4.1%, versus 4.3% for the 12 months ending in February.
• The average workweek in March was 34.4 hours (Briefing.com consensus 34.3), versus 34.3 hours in February. Manufacturing workweek was unchanged at 40.0 hours. Factory overtime decreased 0.1 hour to 2.9 hours.
• The labor force participation rate increased to 62.7% from 62.5% in February.
• The employment-population ratio increased to 60.3% from 60.1% in February.

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Originally Posted April 5, 2024 – Strong nonfarm payrolls growth marches on in March