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CRYPTO MARKETS, BITCOIN STEADY WITH SOME LUNA HELP (1425 ET/1825 GMT)
Cheer returned to cryptocurrency markets this week, with the global crypto market cap holding steady above $2 trillion.
Bitcoin broke the $47,000 level, but its ride has been a bit bumpier since.
Helping bitcoin this week was Singapore-based Luna Foundation Guard, which says it is buying bitcoin as reserves for its dollar-pegged stablecoin TerraUSD (UST).
The foundation plans to acquire over $100 million of bitcoin each day until it meets a target of $3 billion in bitcoin reserves. As of Wednesday, the firm had purchased bitcoin valued at approximately $1.31 billion, according to Will Hamilton, head of trading and research at Trovio Capital Management.
The world's biggest cryptocurrency dropped to around $44,000 on Friday, but bounced back and is currently trading just above $46,000. It's on track to lose 1.4% this week after jumping more than 13% last week.
"If (bitcoin) can not hold above the $44,000 level that would be seen as a fake breakout and therefore suggest downside in the short term," Marcus Sotiriou, analyst at digital asset broker GlobalBlock wrote.
Meanwhile, the LUNA token which backs UST has jumped nearly 20% in the last seven days, and is trading near an all-time high of $107.57, as per CoinMarketCap.
Ether, is set for a third straight week of gains, up 4% this week and trading around $3,435.
Of the 10 top tokens by market capitalization, solana is the strongest performer this week, gaining around 28% with its market cap back above $43 billion.
From a sectoral view, the decentralized finance sector tracked by research firm Messari rose 13.91% this week and the Web3-related sector rose 10.27%. However, tokens tied to the gaming space dropped 1.27% after multiple double-digit weeks of positive returns.
The token tied to online game Axie Infinity (AXS) is up 5%. News broke earlier this weak that hackers had stolen millions of dollars from the blockchain used to power it.
MASTERCARD AND VISA LIKELY TO GET BOOT FROM TECH SECTOR (1346 EDT/1746 GMT)
Some of Wall Street's most valuable companies are likely to be booted from the information technology sector and pushed into
financials and industrials, according to S&P Dow Jones Indices.Mastercard, Visa, PayPal Holdings and other companies would likely be affected by S&P Dow Jones
Indices' annual review of its Global Industry Classification
Standard, or GICS, an industry taxonomy widely used by
investors. Some funds have rules governing how much they may
invest in any given sector.As part of revisions that will go into effect a year from now in March 2023, companies in Data Processing & Outsourced
Services, a the sub-industry that currently falls within the
tech sector, will be dispersed across the industrial, financial
and consumer discretionary sectors, based on the services each
company provides. Such data processing services include
payments, payroll and travel, according to a S&P Dow Jones
Indices press release late on Thursday, without naming specific
companies."These support activities are closely aligned with the business support activities covered under the Industrials Sector
rather than the Information Technology Sector, and with the
Financials Sector in the case of payment processors," according
to the press release.S&P Dow Jones Indices said it would provide the names of the largest companies to be affected by June 30, with a full list
shared by Dec. 15. Below is a list of S&P 500 components likely
to depart the tech sector as a result of the changes, since they
are now classified as Data Processing & Outsourced Services.Company Market cap
(blns)
Mastercard Inc $708
Visa Inc $468
PayPal Holdings Inc $135
Automatic Data Processing Inc $96
Fiserv Inc $67
Fidelity National Information $61
Services Inc
Paychex Inc $49
Global Payments Inc $39
Fleetcor Technologies Inc $20
Broadridge Financial Solutions Inc $18
Jack Henry & Associates Inc $14
Reclassifying Mastercard and Visa would rob the tech sector of its third and fifth most valuable components, with market capitalizations of $708 billion and $468 billion, respectively.
The planned changes follow a major reshuffle in 2018 that moved heavyweights including Alphabet, then-named Facebook and Netflix out of the tech sector and into a rebranded and expanded communication services sector.
IT'S INFLATION, STUPID. GROWTH AND VALUE, TOO (1250 EDT/1650 GMT)
Investors may be missing out on what strategist Richard Bernstein calls a new investment paradigm based on inflation that can straddle both the growth and value styles.
Investors are not altering their thinking, even as the global economy changes significantly, sticking to old leadership in their portfolio strategies just as they did in 2010, warns Bernstein, the former investment maven at Merrill Lynch.
"This could be a mistake," says Bernstein, who now leads Richard Bernstein Advisors, in a white paper.
"It is entirely possible that pro-inflation assets could be both value and growth," Bernstein said separately in an e-mail.
"We didn’t outline the argument in the growth-value framework because the energy sector currently ranks No. 1 for dividend yield (value). But it's little known that it ranks No. 1 for five-year projected earnings growth (growth) as well," he said.
It took investors more than five years to realize the United States was in a major bull market after the financial crisis. Now investors are so enamored of U.S. leadership they believe the most speculative stocks should comprise the core of their holdings, Bernstein says.
But investors are underweight assets that might benefit from higher inflation, according to the paper, "The Start of a New Investment Paradigm."
There are longer-term opportunities in energy, materials, industrials, commodities, commodity-related countries, gold and some real assets. These sectors will be consensus core holdings in about five years if history repeats.
"This is the story for the next decade," the paper said.
INDIVIDUAL INVESTORS OPINE ON VALUATIONS (1225 EDT/1625 GMT)
As part of the most recent American Association of Individual Investors (AAII) Sentiment Survey, AAII asked its members to share their thoughts on the current state of stock valuations.
AAII reported that slightly more than half of all respondents (51%) felt that stocks are "overvalued and that many investors are being too optimistic."
Against this, 20% of respondents said that they feel stocks are "fairly valued given economic and global circumstances."
In contrast, Around 16% had a "mixed outlook." These respondents said "certain kinds of stocks, such as growth stocks, are overvalued while others, like value stocks, are undervalued."
Only 5% of respondents see the stock market overall as currently being undervalued.
Here are a couple of quotes from investors on the matter:
"Fairly priced as we wait to see if the economy moves lower as the world economy becomes more difficult to operate in or if it moves higher as supply chain kinks are worked out with minimal impact to profits."
"Many big-name stocks are overvalued, while many lesser-known stocks are good deals."
FRIDAY'S DATA ALSO-RANS: PMI, CONSTRUCTION SPENDING (1215 EDT/1615 GMT)
While the Labor Department's generally upbeat March employment report hogged the limelight on Friday, other less perky indicators were waiting in the wings.
First, activity in U.S. factories unexpectedly decelerated last month.
The Institute for Supply Management's (ISM) purchasing managers' index (PMI) defied estimates by dropping 1.5 points to 57.1.
A PMI reading over 50 indicates an increase in monthly activity.
A plunge in the forward-looking new orders component - to 53.8 from 61.7 - along with a larger-than-expected 11.5 point surge in the prices-paid element, were among the report's more downbeat surprises.
"The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment," said Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee. "March brought back increasing rates of price expansion, due primarily to instability in global energy markets."
Upbeat comments from survey participants, such as "customer orders are brisk" and "demand continues to be strong," were tempered by more downbeat remarks, like "still combating labor and material issues like availability and inflation" and "inflationary pressures across all categories have made it challenging to manage cost and profitability."
Below is a breakdown of ISM PMI, which shows prices paid jumping to the highest since June 2021, which suggests manufacturers will continue passing prices along to consumers and add to the odds of aggressive Fed tightening:
Next, expenditures on U.S. construction projects increased by 5% in February, marking a steep slowdown from January's 1.3% increase and missing the 1% consensus by half.
Line-by-line, the Commerce Department's report showed spending on residential structures once again did the heavy lifting, rising 1.1% as homebuilders strive to replenish inventories depleted by booming housing demand.
A 0.4% drop in publicly funded projects - notably a 1.3% drop in highway/streets - kept the headline number subdued.
EUROPE POSTS 1.1% WEEKLY GAIN (1151 EDT/1551 GMT)
Europe's broad, pan-regional benchmark index closed 0.55% on Friday, pushing up a weekly gain of 1.1%
Basic resources led gainers, rising 2.2%. Retail closed up 1.9%, while oil and gas stocks rose 1.2% in what was mostly a sea of green.
Travel & leisure declined the most, down 0.49%, followed by a 0.3% decline tech names. Utilities rounded out the three declining sectors.
FLAT-MARKET BELIEVERS AT MORE THAN 2-YEAR HIGH (1131 EDT/1531 GMT)
The percentage of individual investors who describe their short-term outlook for U.S. stocks as "neutral," swelled to a more than two-year high in the latest American Association of Individual Investors Sentiment Survey (AAII). Optimism slipped and pessimism plunged.
AAII reported neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, jumped 8.8 percentage points to 40.6%. Neutral sentiment was last higher on Jan. 1, 2020 (40.9%). The historical average is 31.5%.
Bullish sentiment, or expectations that stock prices will rise over the next six months, dipped by 0.9 percentage points to 31.9%. Optimism remains below its historical average of 38.0% for the 19th consecutive week.
Bearish sentiment, or expectations that stock prices will fall over the next six months, slid 7.9 percentage points to 27.5%. Pessimism was last lower on Nov. 18, 2021 (27.2%). The drop ends an 18-consecutive-week streak of readings above the historical average of 30.5%.
AAII noted that with neutral sentiment above 39.8%, it is now at an "unusually" high level.
"Historically, unusually high neutral sentiment readings have been followed by slightly below-average and below-median six-month returns for the S&P 500 index. However, the majority of past unusually high neutral sentiment readings were recorded during the so-called lost decade of 2000–2009."
With these changes, the bull-bear spread is now positive at +4.40 from -2.6 last week.
NO COILED SNAKES IN THE PEANUT BRITTLE: A JOBS REPORT DEEP DIVE (1105 EDT/1505 GMT)
The Labor Department's employment report released on April Fool's Day had nothing prankish about it. Surprises were modest, and cumulatively, the data cemented expectations for a 50 basis point interest rate hike at the conclusion of the Federal Reserve's next policy meeting in May.
The U.S. economy added 431,000 jobs in March, undershooting the 480,000 consensus but standing on the shoulders of February's upwardly revised 750,000 surge.
With this, the labor market has recovered all but 1.6 million of the 22 million-plus jobs hemorrhaged over March and April, two years ago at the start of the pandemic.
It marks the first downside surprise in six months, and the 11th straight month of gains north of 400,000.
"Strong gains on the employment front continue to signal a green light for investors despite multi-decade highs in inflation and concerns over higher rates and Fed tightening," writes Peter Essele, head of portfolio management at Commonwealth Financial Network. "The economy appears to be in exit velocity mode, with the only concern being the amount of labor supply available to fuel the robust recovery."
While monthly wage growth rose 0.4% as expected, the year-on-year increase was a bit hotter than anticipated, rising 5.4% as employers struggle to attract workers to their ranks to meet surging demand.
Rising wages, while providing consumers with more money to spend, is a stickier brand of inflation than, say food or energy, and suggests higher prices are with us for a while.
That's a state of affairs against which Powell & Co have vowed to act "aggressively," and seems to confirm a 50 basis point hike in the Fed funds target rate awaits in the wings.
"It's decent report, but it carries wage pressures and a half-percent (interest rate) rise at (the Fed's) May meeting is a near certain," says Peter Cardillo, chief market economist at Spartan Capital Securities in New York. "And if inflation accelerates even further than at the June meeting, we're looking at another half-percent rise."
The graphic below shows annual wage growth along with other major indicators, all of which soar rudely above the Fed's average annual 2% inflation target:
The depressed labor market participation rate extended its languid trudge upward, rising to 62.4% from February's 62.3% as Americans slowly ease their way back into the labor market pool.
Rising participation often goes hand-in-hand with rising joblessness, as non-participants aren't considered "unemployed." But job openings are hovering near record highs - indeed, there are nearly two unfilled jobs for every unemployed worker.
Though it still remains well below pre-COVID levels, the fact that it continues to rise even as the unemployment rate falls, demonstrates how tight the labor market remains.
"The dip in the unemployment rate came because the 736K increase in household employment outstripped the 418K increase in the labor force," writes Ian Shepherdson, chief economist at Pantheon Macroeconomics. "The latter was big enough to lift the participation rate by a tenth to 62.4%, the highest since March 2020."
The unemployment rate shaved off 0.1 percentage point to 3.6%, the lowest level since February 2020, the month before mandates to contain the pandemic provoked the steepest, most abrupt recession in U.S. history.
As the jobless rate falls, the short-term unemployed account for a growing slide of the total pie.
While benefits expiry could be part of that picture, it most likely suggests laid off workers are finding new gigs more quickly as employers sweeten the pot and scramble to fill their rosters.
Now let's pay a visit to our favorite grumpy uncle, the Misery Index.
For our purposes, the Misery Index adds the unemployment rate to annual headline CPI growth.
As seen in the graphic below, that sum total was last as high in June 2020, when unemployment was a dismaying 11%.
"Unfortunately, with inflation running so hot – CPI up 7.9% and the PCE up 6.4% on an annual basis – an extremely strong labor market is putting further upward pressure on prices and has pushed the Fed into a corner," says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
Misery, thy name is "inflation":
More good news could be found in the narrowing jobless gap along racial/ethnic lines.
While unemployment among all major subgroups edged lower, Black joblessness fell most, resulting in a Black/white unemployment disparity of 3 percentage points - 6.2% versus 3.2%.
"Today's report shows promising improvement across demographic groups," tweeted Elise Gould, senior economist at the Economic Policy Institute. "While a notably volatile series, Black unemployment has fallen now three months in a row, a hopeful sign the recovery is reaching Black workers."
Wall Street was mixed in late morning trading with less-sunny data - in the form of ISM PMI and construction spending - as clouds on the horizon.
WALL STREET GAINS, NODDING TO JOBS NOT CURVY YIELDS (1010 EDT/1410 GMT)
Wall Street rose on Friday as investors set aside concerns about yield curve inversions after data showed U.S. job growth rose at a brisk clip in March to provide support for stocks that just posted their first quarterly decline in two years.
The unemployment rate fell to a new two-year low of 3.6% and wages re-accelerated, giving the Federal Reserve grounds to raise interest rates by 50 basis points in May.
Energy and materials are the biggest gaining sectors, while information technology is leading decliners. Small caps are up as semiconductors and transports fall. Value is rising and outpacing gains in growth.
"Today's report suggests that the labor market should continue to do well and that's a great fundamental support for the (stock) market," said Anthony Saglimbene, global market strategist, Ameriprise Financial.
"In terms of the inversions, the market can look through some of these yield curve inversions. I would only become more concerned if a greater number of points on that yield curve started to invert," he said.
U.S. Treasury yields jumped and the curve between two-year and 10-year notes inverted for the third time this week, after the labor market data showed average hourly earnings in March rose slightly more than economists had expected.
Here's a snapshot of early market prices:
U.S. STOCKS POST MODEST GAINS AFTER PAYROLLS (0900 EDT/1300 GMT)
U.S. stock index futures are modestly higher on Friday, though after the release of the Labor Department's March jobs data, they have pared gains.
The March nonfarm payrolls headline jobs came in below the estimate, while the unemployment rate slipped. Average hourly earnings were in-line with estimates on a month-over-month basis, but a little hotter than expected year-over-year:
U.S. stocks slumped to close out the first quarter on Thursday with its biggest quarterly decline in two years as concerns persisted about the war in Ukraine and its inflationary effect on prices and the Federal Reserve's response.
In any event, in the wake of the jobs data, the U.S. 10-Year Treasury yield is in the 2.42% area, and the 2s/10s yield spread is slightly negative.
Regarding the labor market report, Jim Paulsen, chief investment strategist, at The Leuthold Group said:
"What it does is quell fears the economy is falling off a cliff. This is a very good report and it didn't deliver an overheated blow either. It's kind of benign but a little on the positive sign. It might lift GDP estimates for the quarter which could affect earnings estimates."
Paulsen added, "It helps reduce fears the economy is really slowing or weakening. It's not. At the same time it doesn't add to inflation fears in a dramatic way."
Here is your premarket snapshot:
FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE: