Markets enjoyed a strong rebound Friday as the latest employment report indicated a labor market that continues to expand while keeping higher wages at bay, Prudential’s Chief Market Strategist Quincy Krosby said Monday in her weekly “Connecting the Dots” outlook.
“At this stage of the bull market you don’t expect to see over 300,000 new jobs,” Krosby said. “You had a wonderful picture for Wall Street—major move in jobs, the workweek gained, labor participation picked up, but you didn’t have wages moving up in a material way like they did in the last report, which had triggered a sell-off in the market on fears of inflation.”
But what is this spooky-sounding “quadruple witching” all about?
“Quadruple witching happens four times a year,” Krosby said. “It’s the day that stock index futures, stock index options, stock options and single stock futures all expire simultaneously. Typically trading volume picks up, but so too can volatility. It’s not as scary as it sounds.”
The 10-year Treasury yield flirted with 2.9 percent, but this week’s Consumer Price Index and Producer Price Index reports, will be an important focus to help determine the pace of inflation and its effect on Treasurys. The consumer represents 71 percent of the 18-trillion dollar plus U.S. economy, so the market will pay close attention to the Retail Sales report. In addition, the JOLTS report may provide anecdotal data that reveals some Americans are leaving jobs for ones with higher wages—a possible early indicator of inflation.
“This market is still on guard for any signs that inflation is building more quickly than consensus estimates,” Krosby said. “The market will be watching these data releases very closely as they could impact the 10-year Treasury yield.”
Trade tariff-related headlines will continue to be in the news following the president’s announcement last week, as will updates on a potentially historic meeting with North Korea’s Kim Jong-un.
“Headlines are always important, whether its North Korea, whether its tariffs, or whether its reactions from other countries, particularly the EU and China,” Krosby said. “But overall the data is showing the kind of traction that may lead us to that special 3% GDP growth the market has been trying to reach on a steady basis.”
Earnings releases to watch:
Dick’s Sporting Goods
This week’s data releases:
Tuesday: NFIB Small Business Optimism Index; Consumer Price Index (CPI)
Wednesday: Producer Price Index (PPI); Retail Sales
Thursday: Housing Market Index
Friday: Housing Starts; Industrial Production; Consumer Sentiment; JOLTS (Job Opening and Labor Turnover report); Quadruple Witching
Read Quincy Krosby’s full Q1 Market Commentary: Turning the Page.
The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This is solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.