Don’t Sweat This Particular Data
The trend is your friend.
As we gear up for April jobs data, let’s make a promise to each other not to overreact.Rather, let’s keep our heads. Let’s remember that overreactions create opportunities to profit from inefficiencies. Let’s not be the ones creating those inefficiencies.
If you have a plan, no single day’s worth of data – not the Consumer Price Index or the PCE Price Index, neither initial claims for unemployment nor even monthly jobs numbers – is ever enough to cause you to change it.
The trend is the thing. The trend is your friend. The trend is probably not changing today.
Plenty of people will attempt to interpolate the Bureau of Labor Statistics’ employment situation report through the eyes of Federal Reserve Chair Jerome Powell.
That’s likely to show up in pre-market price action as well as throughout the day as investors, traders, and speculators get ready for the weekend.
Here are the basic facts.
The BLS will release its April jobs report at 8:30 a.m. ET. A FactSet-compiled consensus expects nonfarm payroll employment to rise by 233,000. The total for March was 303,000.
The consensus expects the unemployment rate to be steady at 3.8 percent.
And hourly earnings rose 0.3 percent month over month, matching the 0.3 percent gain from February to March. A forecast annual rise of 4.0 percent would mark a slight deceleration from 4.1 percent during March.
Further deceleration on the wage-growth front would signal some easing of inflationary pressures. And that’s another thing, still: inflation. The question is whether it’s ebbing or flowing.
But we should also be sure we’re looking in the right places for the major pressures.
“Our starting point,” Ritholtz says, “is the shelter component of the Consumer Price Index. At about 40 percent, shelter is the largest portion of the CPI.”
Removing shelter from the equation – and Ritholtz makes a solid case for doing so in this context – and the CPI is at 2.3 percent.
“I said this a few years ago, but it bears repeating here,” Ritholtz concludes, “if the Fed wants lower inflation, they should be lowering rates now.” He said on Wednesday that if he were in charge of the Federal Open Market Committee he’d announce a 50 basis point cut.
Ritholtz, like Powell, is a lawyer by training. Several weeks ago we highlighted that distinction, noting that this Fed Chair was not an economist and that his emphasis on incoming data is a product of his lawyer’s need for evidence.
And I’m sure he’s well aware of Ritholz’s line of argument.
What Powell is for above all is a stable message where investors, traders, and speculators are perpetually poised on knives’ edges.
As Mish Schneider said in her Weekly Market Outlook, this was already a choppy market before the wild intraday reaction to Powell’s post-FOMC presser.
A choppy market is a stock-picker’s market.
(Mish also highlighted one of her own picks in this environment, Moderna $MRNA, which surged more than 12 percent on Thursday and is now up nearly 14 percent since Mish made that call on Tuesday…)
It’s probably wise to prepare for more chop this morning.
