The stock market received the news it was hoping for on Thursday, which is to say that it didn't get the worst-case scenario with the imposition of steel and aluminum tariffs. The president's tariff announcement exempted Canada and Mexico indefinitely and there was a negotiation provision for others who are impacted.
An element of protectionism is still very much in the air, yet the targeted application of these tariffs relieved some of the pressure that had been building up over the prospect of a global trade war. For the time being, the market appears accepting of the idea that it is likely to see trade skirmishes more so than a world trade war.
It's not optimal, but it's better than feared. That understanding catalyzed yesterday's late rally, which left the S&P 500 on the doorstep of its 50-day simple moving average (2741).
This morning, conviction among buyers and sellers was lacking in front of the February Employment Situation Report. That was a bit surprising in light of press reports noting President Trump will meet North Korean leader Kim Jong-un by May, fostering a sense that the nuclear tension on the Korean Peninsula is going to subside.
There is some conviction after the employment report, however, and it is being shown by the bulls.
The S&P futures are up 17 points and are trading 0.5% above fair value. The Nasdaq 100 futures are up 49 points and the Dow Jones Industrial Average futures are up 176 points.
The basis for the bullish bias is the recognition that the February employment report resuscitated the Goldilocks narrative. Specifically, it was highlighted by robust job growth and a deceleration in the year-over-year change in average hourly earnings, which helped temper the angst about increasing wage-based inflation pressures that were borne out of the January employment report.
The question now is, will the Treasury market settle down or will it latch on to the view that wage-based inflation pressure is inevitable with the strong job growth and full employment? The 10-yr yield, which was unchanged at 2.87% in front of the report, has increased three basis points to 2.90% following the report.
The second question is, will the stock market be put off by the bump in rates or will it see through them as a sign of confidence in a strengthening economy that is good for earnings growth?
That answer may depend on the pace at which interest rates go up, yet there is no mistaking that the February employment report couldn't have been drawn up much better for the stock market.
The notable headlines from the Employment Situation Report are as follows:
- February nonfarm payrolls increased by 313,000 (Briefing.com consensus 210,000). Over the past three months, job gains have averaged 242,000 per month
- January nonfarm payrolls revised to 239,000 from 200,000
- December nonfarm payrolls revised to 175,000 from 160,000
- February private sector payrolls increased by 287,000 (Briefing.com consensus 195,000)
- January private sector payrolls revised to 238,000 from 196,000
- December private sector payrolls revised to 174,000 from 166,000
- February unemployment rate was 4.1% (Briefing.com consensus 4.0%) versus 4.1% in January
- Persons unemployed for 27 weeks or more accounted for 20.7% of the unemployed versus 21.5% in January
- The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 8.2%, unchanged from January
- February average hourly earnings were up 0.2% (Briefing.com consensus 0.2%), rounding up from the specific 0.15% increase, after increasing 0.3% in January (rounding up from the specific 0.26% increase)
- Over the last 12 months, average hourly earnings have risen 2.6%, versus 2.8% for the 12 months ending in January
- The average workweek in February was 34.5 hours (Briefing.com consensus 34.4) versus an upwardly revised 34.4 hours (from 34.3) in January
- February manufacturing workweek was 41.0 hours versus 40.8 hours in January
- Factory overtime increased 0.1 hours to 3.6 hours
- The labor force participation rate was 63.0% in February, versus 62.7% in January
In other developments, the Bank of Japan left its interest rate policy unchanged, as expected; and there is some chatter that Toys 'R Us might liquidate its operations, which is weighing noticeably on toy and game makers Hasbro (HAS) and Mattel (MAT).
Finally, today marks the 9-year anniversary of the market bottom in 2009. To be sure, the stock market has come a long way from that bottom. It is set to climb at the open on the back of economic news that is good -- not great -- which is what the stock market seems to like best.