It was all good just a few days ago but a reality check came soaring back in on Thursday this week for markets. After a late rise in stocks on Wednesday the following day saw the major indices all drop significantly with the tech-heavy NASDAQ getting the worst of it as the index fell over 5% on the day. For the week the S&P 500 stayed mostly flat while the NASDAQ lost a little under 1.5%.
Why the Bearish Turn?
Stocks and cryptos have had a rough last month or so of trading due to a number of factors. None bigger than tightening monetary policy and sustained high inflation. Supply chain issues and shortages remain while recent covid case surges in China led to factories shutting down once again. On top of that the Russian war in Ukraine war rages keeping prices for oil and other commodities high. Central banks around the world are raising interest rates with some even warning investors of an upcoming recession already.
Meanwhile, the Federal Reserve’s meeting on Wednesday saw stocks stage a huge rally shortly after remarks from Fed Chair Jerome Powell that it isn’t considering raising interest rates 75 basis point at one time. The central bank did raise rates 50 basis points though and signaled similar increases over the next few meetings.
Apparently some investors took the nixing of a 75 point jump as bullish, although the difference between multiple 50 points hikes and a 75 point hike followed by other, potentially smaller increases remains unclear.
Traders seemed to figure things out on Thursday as Wednesday's rally was more than wiped out, with traders selling both stocks and bonds on the day.
However, despite all that doom and gloom in stocks, positives remain and were reiterated once again with the release of the April jobs report.
Jobs Data
The April Employment Situation Report released Friday morning showed the economy adding 428,000 jobs, the same as last month and slightly above what economists had predicted. The unemployment rate meanwhile met estimates and stayed flat at 3.6%. This might be a good time to remind everyone that the unemployment rate is currently where it was right before the pandemic and at the time was a 50-year low.
Now the real unemployment rate adjusted for a drop in the labor force participation rate is a little higher than that but labor force participation has been steadily rising since the pandemic where it hit a low of 60.2%. The participation rate now stands at 62.2% compared to the 63.4% just hit before COVID-19. However, the rate has been consistently increasing over the last year until this report where it dropped to 62.4%, marking the first decline since May of last year.
Businesses are still struggling to fill positions and meet consumer demand as the unemployment rate remains near 50-year lows and initial unemployment claims sit below the long-term averages even after rising from 181,000 to 200,000 claims last week.
All in all, the S&P 500 fell 0.21%, the Dow Jones Industrial Average dropped 1.33%, and the NASDAQ lost 1.6%.
