Economy
Weekly claims for unemployment insurance spiked this week to the highest level we've seen this year. The jump of 22,000 claims from last week represents the highest weekly change since October. Time will need to pass so the data can be hashed through a bit, but this report poses a few questions. Namely, was the spike a result of the mass federal government layoffs, or is this more widespread throughout the labor market? We'll be paying close attention to this weekly report over the coming months, as will Jerome Powell and the FOMC. The market started pricing in greater odds of a second, and possibly third, rate cut before the end of the year in light of the most recent labor market data. We'll receive the February monthly jobs numbers next Friday as we usher in a new month. The unemployment rate currently sits at 4%, and a move higher over the coming months would likely see increased odds of additional rate cuts from the Fed.
Labor data aside, we had an important inflation report out Friday this week. The Fed's preferred inflation data, the personal consumption expenditures index (PCE), came in as-expected on balance. Core PCE sits at 2.6% over the last 12 months, above the Fed's stated target of 2%. Some of the more surprising (and not in a good way) data showed that despite incomes rising over the last month by more than expected, consumers are spending less and saving more. Rising layoffs and lower spending are two trends that we don't want to see continue if we are counting on strong corporate earnings to carry us the next leg of the bull market.
Markets
The S&P 500 continued the recent slide this week, falling 0.97% to close out February. This despite a strong earnings report from chipmaker and market titan Nvidia on Wednesday. We were close to being in a 5% drawdown for the S&P this week before the market rallied into Friday's close. We're now just above being flat on the year coming off a strong earnings season. In our post two weeks ago we included a chart from Ryan Detrick showing how the second half of February is historically weak for markets, and the last two weeks are now yet another data point suggesting seasonal weakness. With the recent selloff it certainly doesn't "feel" as if we are less than 5% away from all-time highs in the market. CNN's Fear and Greed Index may shed some light on that. Almost no stocks are making new 52-week highs, volatility is up slightly, and the broad index has fallen below its 125 day moving average. All that to say, there's not a lot really working at present in the equity markets. On the other hand, 5% pullbacks are a regular occurrence for the stock market, happening on average a few times every year. It could be we are just going through "one of those times" at the moment.
What We're Reading
- Market Timing a Recession - Ben Carlson
- Is Bird Flu the Only Reason Egg Prices are Soaring? - NY Times
Have a great weekend.
Dogwood Wealth Management