By D. Scott Peterson
Fridays Jobs report came in at 126,000 while analysts had estimated 245,000.1 And, February’s total jobs number was revised down to give more credence to a US economic slowdown. This will lead to more speculation about the timeline regarding Federal Reserve interest rate hikes. The revision and low jobs number shouldn’t have been a total surprise given that analysts have been cutting earnings estimates for several months.
The reasons for the slowdown have been obvious for some time. A strong dollar and reduced capital expenditures in the energy sector are the main culprits. Manufacturing is also expected to take a hit given the dollar’s strength. Last but not least a harsh winter in the Eastern seaboard is credited with hurting overall business activity. On the West coast a union dispute over dock workers and shipping companies led to a 2-3 month backlog on ships being unloaded at a snail’s pace.
This has led to the Fed maintaining a dovish and accommodating stance in its timeline on raising interest rates too quickly or too soon. An already strong dollar and raising interest rates could certainly push the recovery back a few steps and hurt American businesses. It’s also important to note that international economies have already experienced slowdowns for a myriad of reasons. This development has also played a role in slowing the Federal Reserve’s timeline for raising rates.
Earnings reports start on Wednesday (4-8-15) with Alcoa customarily announcing first. Earnings, and more importantly forward guidance, will be the major influence on the future market direction. In the past few months the markets have been in a trading range. Whether the economy is on firm footing going forward or if the global slowdown/strong dollar/commodities selloff has finally reached our shores will determine if we can break out of this trading range,.
Even with all this, it is important to remember that US GDP is 8.1% above pre-crisis (2008) levels.2 This is why the market has performed so well. Improved productivity and technological progress has helped US business steadily increase profits. We’ll see if this can continue as we work our way through earnings season in the next month or so.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations of any particular security, strategy or investment product for any individuals. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.