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<\/figure>\n\n\n\nJob gains were broad-based, with almost every sector achieving an increase in employees from March. Private education and health services, professional and business services, leisure and hospitality and finance led, gaining 77,000, 43,000, 31,000, and 23,000, respectively. Government, construction, manufacturing and transportation and warehousing also contributed at more tempered levels. Wholesale trade was the laggard, losing 2,200 jobs while utilities and information barely added any, gaining 1,000 each. <\/p>\n\n\n\n
Investors Flock to Risk Assets<\/strong><\/h2>\n\n\n\nMarkets are responding in a bifurcated way this morning, with the yield curve popping on the back of an inflationary report. However, equity investors are focusing on strong job growth as a sign that an imminent recession is unlikely. Yields are being led by the short-end with the 2-year treasury up 17 basis points (bps) to 3.9% while the 10-year is up 9 bps to 3.44%. Equities are rallying, looking to achieve their first daily gain this month with the S&P 500 Index climbing 1.45% to 4121 while regional banks are recovering strongly from their recent malaise. The S&P Regional Banking ETF (KRE) is up 4.6% and propping up the small-cap Russell 2000 Index, which has gained 2%. WTI crude oil is also recovering from hitting a new year-to-date low of $63.64 per barrel yesterday, despite OPEC +\u2019s production cuts, and is up 4% to $71.46 per barrel. The dollar is roughly unchanged. <\/p>\n\n\n\n
Corporate Earnings Underscore Fed\u2019s Views of Consumers<\/strong><\/h2>\n\n\n\nRecent earnings reports underscore the Fed\u2019s concerns about demand for entertainment and travel sustaining strong non-housing services inflation as Americans continue to splurge on out-of-home activities while backing away from buying consumer goods. Examples include the following:<\/p>\n\n\n\n
\n- Bookings Holdings, which is an online travel and entertainment reservation company with brands such as Priceline.com, Kayak and OpenTable, generated first-quarter earnings of $11.60 per share, substantially beating the consensus estimate of $10.48 per share and up from $3.90 per share for the first quarter of 2022. The company\u2019s results underscore the Fed\u2019s belief that strong demand still exists for non-housing services with consumers having pent up demand for entertainment and traveling after sheltering in place and observing other restrictions intended to slow the spread of Covid-19. Indeed, Bookings\u2019 first-quarter revenues of $3.78 billion climbed substantially from the $2.7 billion in first-quarter 2022 revenues. <\/li>\n\n\n\n
- Apple reported net income of $24.2 billion, down 3% from the year-ago quarter but exceeding analysts\u2019 expectation of $22.6 billion. In an example of weak consumer spending in the U.S., Apple\u2019s revenue fell 3% y\/y to $94.8 billion. Revenue missed the $92.9 billion expected by analysts and the period was the second-consecutive quarter of declining revenues. Apple experienced weak U.S. sales, especially for its iPad and computers, but strong sales of its iPhones in emerging markets helped cushion the impact of domestic weakness.<\/li>\n\n\n\n
- Carvana, which sells used cars, reported an adjusted loss per share of $1.51, beating expectations for a loss of $2 a share, a result of the company reducing its sales costs as it shifts its focus to profits rather than growth. Its revenue of $2.61 billion fell from the $3.5 billion from the year-ago quarter but met expectations. In another sign of a weakening consumer, Carvana sold 79,240 units, which exceeded the company\u2019s forecast of between 76,000 and 79,000 units but substantially trailed the first quarter of 2022, when sales totaled 105,000 units.<\/li>\n<\/ul>\n\n\n\n
Will the Coming Days Bring a Wake-Up Call?<\/strong><\/h2>\n\n\n\nThis morning\u2019s inflationary labor report failed to derail investors\u2019 bullish sentiment. Despite the stronger-than-expected labor report this morning and Powell\u2019s recent comments emphasizing that the Fed still hasn\u2019t determined if its monetary policy is sufficiently restrictive to curtail inflation, investors believe that only an 11% chance exists for the central bank to increase the fed funds rate next month. A busy week ahead, however, is likely to further challenge investors\u2019 dismissal of Powell\u2019s hawkish comments. Deposit and loan statistics this afternoon will be followed by the potential for additional regional banks to fall into FDIC receivership this weekend. This coming Wednesday\u2019s Consumer Price Index, if stronger than expected, could be a rude wake up call for investors that are pricing securities based on the unlikely chance of rate cuts this year. <\/p>\n\n\n\n
Recent earnings reports underscore the Fed\u2019s concerns about demand for entertainment and travel sustaining strong non-housing services inflation as Americans continue to splurge on out-of-home activities while backing away from buying consumer goods. Examples include the following:<\/p>\n\n\n\n
- \n
- Bookings Holdings, which is an online travel and entertainment reservation company with brands such as Priceline.com, Kayak and OpenTable, generated first-quarter earnings of $11.60 per share, substantially beating the consensus estimate of $10.48 per share and up from $3.90 per share for the first quarter of 2022. The company\u2019s results underscore the Fed\u2019s belief that strong demand still exists for non-housing services with consumers having pent up demand for entertainment and traveling after sheltering in place and observing other restrictions intended to slow the spread of Covid-19. Indeed, Bookings\u2019 first-quarter revenues of $3.78 billion climbed substantially from the $2.7 billion in first-quarter 2022 revenues. <\/li>\n\n\n\n
- Apple reported net income of $24.2 billion, down 3% from the year-ago quarter but exceeding analysts\u2019 expectation of $22.6 billion. In an example of weak consumer spending in the U.S., Apple\u2019s revenue fell 3% y\/y to $94.8 billion. Revenue missed the $92.9 billion expected by analysts and the period was the second-consecutive quarter of declining revenues. Apple experienced weak U.S. sales, especially for its iPad and computers, but strong sales of its iPhones in emerging markets helped cushion the impact of domestic weakness.<\/li>\n\n\n\n
- Carvana, which sells used cars, reported an adjusted loss per share of $1.51, beating expectations for a loss of $2 a share, a result of the company reducing its sales costs as it shifts its focus to profits rather than growth. Its revenue of $2.61 billion fell from the $3.5 billion from the year-ago quarter but met expectations. In another sign of a weakening consumer, Carvana sold 79,240 units, which exceeded the company\u2019s forecast of between 76,000 and 79,000 units but substantially trailed the first quarter of 2022, when sales totaled 105,000 units.<\/li>\n<\/ul>\n\n\n\n
Will the Coming Days Bring a Wake-Up Call?<\/strong><\/h2>\n\n\n\n
This morning\u2019s inflationary labor report failed to derail investors\u2019 bullish sentiment. Despite the stronger-than-expected labor report this morning and Powell\u2019s recent comments emphasizing that the Fed still hasn\u2019t determined if its monetary policy is sufficiently restrictive to curtail inflation, investors believe that only an 11% chance exists for the central bank to increase the fed funds rate next month. A busy week ahead, however, is likely to further challenge investors\u2019 dismissal of Powell\u2019s hawkish comments. Deposit and loan statistics this afternoon will be followed by the potential for additional regional banks to fall into FDIC receivership this weekend. This coming Wednesday\u2019s Consumer Price Index, if stronger than expected, could be a rude wake up call for investors that are pricing securities based on the unlikely chance of rate cuts this year. <\/p>\n\n\n\n