U.S. stocks managed to close higher on Friday, 1 April 2022, thanks to some late buying near the close.
A solid jobs report announced on Friday could mean that the Federal Reserve may hike rates at least six times this year. The yield curve continued to flatten, and while it may indicate a recession in the near future, the strength of the economy based on the unemployment numbers gave investors comfort that a recession may not actually happen.
Non-farm payrolls increased 431,000 (expected 490,000) last month, after an upwardly revised 750,000 gain in February. While the unemployment rate fell to 3.6% (expected 3.7%), labour force participation rate ticked up and wages were higher.
These bolster the case for the Fed to go as high as 0.5% on their next hike.
As I have mentioned before, the Feds 2 main objectives are stable prices and maximum employment. With employment being so strong they can be more aggressive at getting inflation down.
During the week, the S&P 500 squeaked out a slight gain while the Dow Jones edged slightly lower, and the Nasdaq gained 0.6% after the three benchmarks indexes closed the first negative quarter for stocks in two years.
Here are the closing levels on Friday, 1 April 2022: –
| Last | Change | %Change | |
| Dow Jones | 34,818.27. | +139.92. | +0.40% |
| S&P 500 | 4,545.86 | +15.45. | +0.34% |
| Nasdaq Comp | 14,261.50 | +40.98. | +0.29% |
| U.S. 10Y | 2.38% | ||
| VIX | 19.63 | -0.93 | -4.52% |
People having jobs and earning more money may not be enough to overcome the higher prices of goods and services. This could lead to more savings rather than spending. If this is the case, then the economy may not grow to the level that investors are betting on with these high stock prices.
Biden’s release of strategic oil reserves has helped bring down crude prices and prevent it from going out of control. Unfortunately, the energy and commodity complex are still on the high side and the only way to bring it down is to curb demand.
Slowing demand is exactly what the Fed will be trying to do when it increases interest rates.
The difficult part is to bring inflation down while not bringing the economy into a recession.
For now, investors believe that that will not happen even if the Fed gets more aggressive.
With all these concerns including a war still ongoing in Ukraine, we are only just a few percent off all-time highs in the S&P.
Either the market is right and we will see this through unhurt or investors could be setting themselves up for some pain.
Fortunately, for now, it looks like it’s still better to be long than short.
Source: CBOE, Bloomberg
This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.
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