In a tribute to arguably the single best golf tournament of the year, The Masters, unfortunately, the most recent economic data has missed the mark, ending up in the proverbial rough. As we have discussed previously (click here or here), economic indicators have been slowing for quite some time, and this week was no exception.
There were many reports this week, with each day containing a significant data release. Unpromisingly, every meaningful report released this week was below expectations (except the Unemployment Rate), and many were below the prior month’s reading as well:
- ISM Manufacturing PMI (46.3 / 47.7 / 47.5)
- ISM Non-Manufacturing PMI (51.2 / 55.1 / 54.5)
- ISM Manufacturing Employment (46.9 / 49.1 / -)
- S&P Global Manufacturing (49.2 / 47.3 / 49.3)
- S&P Global Services (52.6 / 50.6 / 53.8)
- JOLTs job openings (9.9MM / 10.6MM / 10.4MM)
- ADP Employment Change (145K / 261K / 200K)
- Initial Jobless Claims (228K / 246K / 200K)
- Unemployment Rate (3.5% / 3.6% / 3.6%)
- Non-Farm Payrolls (236K / 326K / 239K)
- Average Hourly Earnings MoM (0.3% / 0.2% / 0.3%)
(Current / Previous / Consensus)
In aggregate, what this means is there are further signs of the economic weakening professionals have been predicting for many months. Furthermore, due to the recent data misses, Q1 GDP tracking fell further, with the Atlanta Fed’s GDPNow estimate sagging to 1.5% QoQ SAAR, which compares to 2.5% last Friday and a peak of 3.5% on March 23.
Despite the new reports, it’s imperative to remember that markets are forward-looking. According to many analysts, this has been called the most forecasted recession in history. Historically speaking, markets tend to bottom about six months before earnings and the economy, again, because they are forward-looking. So it is not a stretch to believe that a recession of some magnitude has already been priced into the market, as the S&P 500 is still down about -15% from its all-time high. And since the market has likely priced in a recession, just because the data was disappointing doesn’t mean markets have to go down further. In fact, even with all the new data, equity markets were surprisingly solid, with the S&P 500 only down -0.1% for the week. Ultimately, sticking to your plan and taking a long-term perspective is essential to achieving your goals.
Finally, we hope everyone has a great weekend, a blessed Passover and Easter while spending quality time with family and friends. And for any golf fans out there, enjoy The Masters.
Economy
- U.S. equity markets finished largely unchanged for the week ending April 7, with the S&P 500 down -0.1%, the Nasdaq down -1.1%, and the small-cap Russell 2000 down -2.7%. It was a extremely dense news week with almost every report coming in below expectations.
- In March, the ISM Manufacturing PMI dropped to 46.3, its lowest since May 2020. This decline indicates that escalating interest rates and intensifying concerns about a recession are beginning to impact businesses. The report revealed a continuous contraction in manufacturing activity for the fifth consecutive month, as companies reduced production to align with demand projections for the initial half of 2023.
- In March, the ISM Services PMI declined to 51.2, a significant drop from February’s 55.1 and considerably lower than the anticipated 54.5. This figure indicates the weakest service sector expansion over three months, with demand and employment experiencing a slowdown. On a positive note, capacity and logistics improved, and price pressures diminished to their lowest point since September 2020.
- In February, U.S. job openings experienced a decline of -632K, reaching 9.9 million, the lowest figure since May 2021 and below the anticipated 10.4 million. This suggests that the labor market may be beginning to cool down. The most significant reductions in job openings during the month were observed in professional and business services (-278K); health care and social assistance (-150K); and transportation, warehousing, and utilities (-145k).
- In March, the U.S. economy generated 236K jobs, marking the lowest number since December 2020 and slightly below the predicted 239K. This followed robust job gains in the initial two months of the year due to unseasonably mild weather and seasonal factors. While the data indicates a measured slowdown in hiring as businesses face higher borrowing costs and prices, the labor market remains relatively strong.
Stocks
- U.S. equities were in negative territory. Industrials and Consumer Discretionary led the decline, while Healthcare and Utilities outperformed. Value stocks led growth stocks and large caps beat small caps.
- International equities closed higher for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield decreased 21 basis points to 3.29% during the week.
- Global bond markets were in positive territory this week.
- Government bonds led for the week, followed by corporate bonds and high yield bonds.
