- Warnings About the Economy’s Future
- Higher End Retail Sales Stay Positive
- Oil Keeps Climbing
- Employment Numbers Remain Strong
Heading into Friday, markets were on pace to put together consecutive winning weeks. After surviving a deluge of economic data and a profit warning from Microsoft
So far this year, markets have only managed to put together consecutive winning weeks once. That is a marked shift from years past and has unsettled many retail investors. Worries over war, inflation, a slowing economy and now concerns about the strong dollar have been weighing heavily on stocks the last couple months.
On Wednesday, Jamie Dimon warned of a potential “economic hurricane” as the Fed embarks on a quantitative tightening programming to combat inflation and the impact of war in Ukraine. A similar concern about the economy was echoed early Friday morning by Elon Musk who told Tesla
Mixed between Dimon and Musk’s respective warnings was Microsoft. On Thursday, Microsoft issued a profit warning, citing the strong US dollar. The dollar is currently at a one month high and has been gathering strength much of this year. While a strong dollar may be good for consumers buying imported goods, for multinational companies, a strong dollar can be a drag on sales in other countries with weaker currencies.
Meanwhile, on the retail front, the mixed messages continued last night with Lululemon beating estimates and offering positive forward guidance. May kicked off with disappointing news from Walmart
In the commodity space, oil continues its strong run. This comes in spite of OPEC pledging to increase production at this week’s meeting. The effects of oil are largely being felt at the gas pump and come at a time when workers are beginning to return to offices full time and summer vacation season kicks off. Crude oil futures which actually went negative in 2020 in the wake of Covid are now trading over $155 a barrel.
Finally, we’re ending the week with May’s employment report. The 390K news jobs created exceeded expectations of 325K that had been forecast. The unemployment rate held at 3.6% vs. expectations of 3.5%. Also within today’s report, average hourly earnings increased 5.2% Y/Y. That’s the fifth consecutive month of 5% or better Y/Y gains and may give pause for concern. Generally, anything under 5% is within reason, but once rates are increasing above 5%, it adds to inflationary pressures. Leading the way in job creation was hiring in the leisure and hospitality space. Keeping in mind this was the area hardest hit by Covid, it’s encouraging to see strong hiring in this sector. It’s also worth noting that the transportation and warehousing sector along with construction are both net positive on new jobs compared with February of 2020 when the pandemic began.
Heading into today’s economic news, S&P 500 and Nasdaq futures had been down. Following the jobs number, futures cut those losses before resuming a move lower. Volatility, which has contracted all week is now up, with VIX trading a little under 26. I’ll be watching today to see how the market ultimately digests the employment news. For retail traders, the message remains unchanged. More choppy trading is likely in the cards based on VIX. For shorter-term investors, that may offer some attractive option trades. Longer term investors can also find plenty of opportunities in underlyings whose valuations have been cut.
tastytrade, Inc. commentary for educational purposes only.