The stock market had quite a reversal yesterday that enabled it to reclaim a posture above its 200-day moving average after sharp losses early in the session took it below that key technical support level. Follow-through efforts this morning, however, were lackluster ahead of the April employment report.
Prior to the report, the S&P futures were down 10 points and trading 0.2% below fair value. The Nasdaq 100 futures were down 29 points and the Dow Jones Industrial Average futures were down 80 points, leaving them both about 0.2% below fair value.
Reports suggesting there weren't any major breakthroughs in the U.S.-China trade discussions garnered some attribution for the soft posture, yet we would suggest that was a case of fishing for headline causality with a hook that was already baited with the belief that nothing major was going to come out of those discussions.
If there was no surprise, then, it can't be much of a market mover. The April employment report, though, contained a few surprises.
The unemployment rate dropped to 3.9%, which is the lowest level since December 2000, and the labor force participation rate dipped in April despite reports pointing to improved job-finding prospects. It was the drop in the participation rate, too, that drove the drop in the unemployment rate.
Average hourly earnings were up 0.2%, as expected. The surprise there perhaps is that it computed into a year-over-year trend that remains remarkably understated given an unemployment rate with a 3-handle on it, initial jobless claims that are at multi-decade lows, and the acknowledgment from manufacturers that they are finding it difficult to find skilled labor.
All in all, the key takeaway from the report is that there weren't a lot of big surprises in it, which effectively means the Fed is apt to stay on course for at least two more rate hikes this year.
Fittingly, the report didn't do anything to alter the pre-market bias in a meaningful fashion. Following the report, the S&P futures are down eight points and are trading 0.1% below fair value.
The notable headlines from the Employment Situation Report are as follows:
- April nonfarm payrolls increased by 164,000 (Briefing.com consensus 190,000). Over the past three months, job gains have averaged 208,000 per month
- March nonfarm payrolls revised to 135,000 from 103,000
- February nonfarm payrolls revised to 324,000 from 326,000
- April private sector payrolls increased by 168,000 (Briefing.com consensus 193,000)
- March private sector payrolls revised to 135,000 from 102,000
- February private sector payrolls revised to 321,000 from 320,000
- April unemployment rate was 3.9% (Briefing.com consensus 4.0%) versus 4.1% in March
- Persons unemployed for 27 weeks or more accounted for 20.0% of the unemployed versus 20.3% in March
- The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.8%, versus 8.0% in March
- April average hourly earnings were up 0.2% (Briefing.com consensus +0.2%), after increasing a downwardly revised 0.2% (from 0.3%) in March
- Over the last 12 months, average hourly earnings have risen 2.6%, versus 2.6% for the 12 months ending in March
- The average workweek in April was 34.5 hours (Briefing.com consensus 34.5) versus 34.5 hours in March
- April manufacturing workweek increased 0.2 hours to 41.1 versus 40.9 hours in March
- Factory overtime increased 0.1 hours to 3.7 hours
- The labor force participation rate was 62.8% in April, versus 62.9% in March
Beyond the employment report, there has been added attention this morning on the news that Berkshire Hathaway (BRK.B) bought another 75 million shares of Apple (AAPL) in the first quarter. That news has given AAPL a 1.1% lift in pre-market action that will afford the information technology sector some relative strength.
The overall tone in pre-market trading, though, is relatively weak as neither the trade headlines nor the employment report headlines have caused a bullish stir.