This is jobs week which always brings extra angst and increase volatility as we moved toward the announcement on Friday. The street looking for and perhaps hoping for jobs to slow a bit from the torrid pace in February. Right now it’s tough sledding for the market which is taking its cue from the weather. Historically in New York the second day of April is above 50 degrees without snow and sleet and in recent years April has been the best month for stocks.
While there isn’t a sense of panic the market has bounced around on headlines more than actual factual developments and it’s no different today. Technology stocks are lower as the war of words increases between Mark Zuckerberg and Tim Cook. The hardest hit segment of the market is consumer discretionary (XLY) which is being dragged down by major pressure on Netflix and Amazon.
Of course those names are by far the strongest in the sector year to date but brick and mortar names which were already in stealth rally mode are getting help from the prospects of the Trump Administration leveling the playing field.
As the Trump Administration fine tunes its list of products under the announced $50 billion in tariffs China officially implemented a $3.0 billion retaliatory tariff on steel and aluminum with a focus on food, fruit and pork.
Tariff concerns worked their way into the March Manufacturing ISM Report on Business. PMI for March was 59.3%, a decrease of 2.46% from the February reading of 60.8%.
- New Orders Index were 61.9%, 3.58% lower than February’s reading of 64.2 percent.
- The Employment Index component was 57.3%, a decrease of 4% from the February reading of 59.7 percent.
- Backlog of Orders Index came in flat from the previous month at 59.8 and continued its 14-month expansion.
Demand remains strong, as it can be seen in the New Orders sub-index, which remained above 60 for the 11th month. The red flag was the Prices sub-index which rose 5.52% to 78.1 from February’s reading of 74.2%. Higher raw material price concerns lead this index to its 25th consecutive monthly increase and the highest reading since April 2011. A number of respondents commented that the threat of tariffs was impacting the supply chain. One such manufacturer said. “New tariffs are causing concern across the supply chain. Full impact will take a few weeks to reveal itself.” While another commented, “Overall, incoming orders are picking up, and supplier pricing is increasing in some commodities.” Pricing power is key, what companies can best pass pricing pressures along to their customers if necessary?
Generally, the market hates uncertainty and Wall Street hates rocking the boat of status quo even more, today’s weakness isn’t a surprise, and investors are looking for the key to turn things around.