Market Opens Lower Amid Growth Concerns and Softening Labor Market

Equities began Thursday, April 6, 2023, with modest declines as concerns about economic growth persisted. The weekly U.S. jobless claims figure exceeded expectations, with 228,000 claims compared to the anticipated 199,000. This unexpected increase adds to a series of data points suggesting a potential weakening in the labor market. Treasury bond yields remained near their yearly lows, with the 2-year Treasury at approximately 3.78%, significantly below its recent peak of 5.06%. The dip in yields may be due to both a slowing economy and market expectations of Federal Reserve rate cuts in the second half of the year.

Recent Data Indicates Potential Labor Market Weakening

The U.S. labor market has been a pillar of strength for the economy, boasting a near multi-decade low unemployment rate of 3.6%. However, recent data may hint at cracks in the otherwise robust job market. The ADP private-payrolls report for March revealed an increase of only 145,000 jobs, considerably below the predicted 250,000. The report also indicated a deceleration in wage growth compared to February’s data. Furthermore, last week’s Job Openings and Labor Turnover Survey (JOLTS) showed that job openings in February fell below 10 million for the first time in nearly two years, signaling a potential cooling in the labor market.

Traders will be closely monitoring Friday’s jobs report, which is expected to show an increase of 240,000 total nonfarm jobs, down from last month’s 311,000. Wage growth is also anticipated to cool to 4.3%, a decrease from the previous month’s 4.6%. A possible silver lining is that moderating wage growth, a crucial driver of services inflation, may support improved core inflation trends.

Q1 Earnings Season to Commence with Big Banks Next Friday

The first quarter of 2023 earnings season will kick off in earnest on Friday, April 14, with major banks like J.P. Morgan and Citibank reporting first. These banks will provide insight into consumer health and offer perspectives on the recent banking crisis, lending standards, and the overall status of regional banks. Since the beginning of the year, estimates for S&P 500 Q1 earnings have dropped significantly, with forecasts now predicting -7.1% year-over-year earnings growth, down from -1.0% as of December 2022. Full-year 2023 estimates have also declined, falling below 1.0% from 5.0% at the end of 2022.

Although there is potential for further downside in earnings revisions, particularly for Q3 and Q4 estimates, a substantial portion of the re-rating lower has already occurred.

Market Closes Near Highs Despite Initial Decline

Despite the lower opening and concerns over economic growth and labor market softening, the market managed to recover throughout the day. The major indices reached their best levels of the day, thanks to strong performance from mega cap stocks and positive sector performance in communication services, utilities, and real estate. Traders should stay informed and make well-informed decisions based on the latest economic data, market trends, and expert analysis.

The S&P 500 experienced an increase of 14.64 points (+0.36%), closing at 4,105.02. The Dow 30 saw a slight growth of 2.57 points (+0.01%), reaching 33,485.29. The Nasdaq made significant gains, rising by 91.09 points (+0.76%) to close at 12,087.96. Meanwhile, the Russell 2000 inched upward by 2.33 points (+0.13%), finishing at 1,754.46.