Price Check: Inflation Reports Could Take Center Stage After Sluggish Jobs Read

Price Check: Inflation Reports Could Take Center Stage After Sluggish Jobs Read

Key Takeaways

    Inflation data front and center this week after Friday’s sluggish jobs report

    Hotels, casinos on the front line as Marriott, Wynn issue earnings today

    With earnings season winding down, 86% of S&P 500 firms beating estimates

(Monday Market Open) If last week was all about jobs, this week is all about prices. Considering how much people worry about inflation these days, two key reports should give us a much better idea whether it’s actually a fact on the ground. 

Wednesday brings the April consumer price index (CPI), which rose a sharp 0.6% in March. Thursday’s Producer Price Index (PPI) might get an even closer look, considering it rose a massive 1% month-over-month in March. That was the largest monthly gain in more than nine years. Year-over-year producer prices rose 4.2%, the biggest in almost 10 years. 

Later in the week comes retail sales. All of this after last Friday’s jobs report disappointed in terms of how much economic growth it showed, but seemed to give the market a bit of a lift by easing rate concerns. 

Several Fed speakers take the podiums later this week, too, which should help shed more light on the inflation and jobs picture. 

And of course, earnings aren’t over yet. Today’s earnings calendar takes a visit to the world of hotels and casinos with reports from Marriott (MAR) and Wynn (WYNN). MAR became the latest stock to beat Wall Street analysts’ consensus on earnings, miss on revenue, and see its shares take a hit. As we’ve been saying, companies that disappoint with revenue are getting punished, no matter how good the bottom line might look. 

One more thing on peoples’ minds is a ransomware attack that forced the largest U.S. fuel pipeline to close over the weekend. Colonial Pipeline said it was forced to halt the transport of fuel from the Gulf Coast to the New York metro area on Friday. 

The ultimate impact of the attack on fuel prices remains unclear, analysts said, but how long it lasts could ultimately help determine whether it’s an issue for the market beyond the next few days. Crude and gasoline prices are up this morning, with crude popping above $65 a barrel. With gas now above $3 a gallon across a lot of the country, you might have to worry about the possible impact on consumers.

Earnings Behind and Earnings to Come

Friday saw a nice mix of growth and reopening stocks rise in sync, with travel company Expedia (EXPE) having a great day after an earnings beat. Better yet, the company says booking demand is booming.

Live Nation (LYV) had about as unsung a year as any stock in the market, considering its main source of business—live concerts—vanished due to Covid. Year-over-year revenue continued to drop in its latest earnings report, but the company talked about summer concerts selling out and its stock made the hit parade on Wall Street Friday, rising more than 6%. 

While it’s good to see optimism from smaller reopening companies, the biggest mouse in the house belongs to Walt Disney (DIS), which reports later this week. We’ll be talking a lot more about what to expect from the theme park/movie/streaming/cruise/resort giant in coming days, so stay tuned.

Later this week come earnings from a couple of China’s giants: (JD) and Alibaba (BABA). Recent Chinese economic data failed to impress, but results from these two companies could provide some new insight. 

The scorecard on earnings season through Friday: 86% of companies that reported have beaten analysts’ estimates for earnings per share, and 76% have reported a positive revenue surprise, FactSet said. For Q1 2021, the blended earnings growth rate for the S&P 500 is 49.4%. If 49.4% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q1 2010 (55.4%).

These strong earnings have helped reduce the forward 12-month valuation of the S&P 500 to a 21.6 price-to earnings (P/E) level, FactSet added. That likely reflects Wall Street analysts raising their earnings estimates for the coming quarters based on better than expected Q1 results.

The forward P/E was close to 24 a few months ago, but remains well above the five-year average of near 18. What’s good is that it’s not quite as stratospheric as it was. 

Maybe that was on some investors’ minds during a buy-the-dip pattern that came back into force on Friday. It also looked like some people used the excuse of a weak jobs report to come back to a few of the growth and Tech stocks that got battered earlier this month.

More Thoughts on Payrolls and the Deeper Meaning

Judging by that jobs report, the economic recovery is going a bit slower than maybe some people expected. Which has its good and bad points. 

In a normal economy, 266,000 new jobs a month would actually be pretty solid. In fact, that’s what a good month looked like before Covid upended the economy. It doesn’t look so great now when people had expected a million, but maybe it’s a double-edged sword.

Some of the market’s nervousness the last few weeks centered around fear of an overheating economy that would force the Fed’s hand, and require Fed Chair Jerome Powell and company to taper supportive monetary policy before they had planned. Now their slow-walk policy seems to have won the day (see more below). So a lower jobs number, by that calculation, hurts workers but helps keep inflation muted and Fed policy dovish. That’s the double-edged part.

Of course, that could change in a week or two, the way things go on Wall Street. We still have April retail sales later this week, along with consumer and producer prices. Will these data points show more sizzling growth or back up evidence from the jobs report that growth is a bit more restrained?

Compare and Contrast: Awaiting Retail Sales, Inflation Data

Retail sales rose 9.8% in March, perhaps helped by government stimulus checks. Those checks are probably less likely to have a big influence in April, because most were either spent or socked away in the bank by then. We’ll preview Friday’s retail sales report a bit more in the coming days. Before that come the PPI and CPI reports.

Producer prices generally can be like a canary in a coal mine, giving investors a sense of whether companies are having to pay more for the materials they use in their products. Considering copper prices rose last week to near-record highs and crude oil remains near its 2021 highs, it’s probably fair to say price pressure has increased, even if job growth hasn’t gone up as much as people thought. 

Since CPI comes a day before PPI, it may offer a preview. Higher producer prices often get passed along to consumers. If CPI is up more than expected Wednesday, you may want to look for a higher than expected PPI the next day. 

The other thing to keep in mind about jobs, inflation and the economy is that—as we pointed out Friday—states are reopening at different rates, and it may take some time for those new jobs to hit the books. That means  it may not be until next month’s jobs report that we see some more of the added jobs we were expecting this time around.

Price Check: Inflation Reports Could Take Center Stage After Sluggish Jobs Read

CHART OF THE DAY: STILL HITCHED? The Nasdaq 100 (NDX—candlestick) and the 10-year Treasury yield (TNX—purple line) have been doing a complicated dance, as this year-to-date chart shows. When the yield goes up, NDX (which contains most of the biggest Tech firms) tends to dive or flatten. When yields go down a bit, as they started to do last week, the NDX can stage a comeback, as it did Friday. However, there are signs of the pattern changing. The NDX actually fell along with yields part of last week. Data Sources: Nasdaq, Cboe. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.  

How Do You Spell “Relief?” For Technology stocks, it apparently is spelled 266,000. That’s the number of jobs created in April, about 25% of the highest expectations. For much of last week, the big fear going into Friday’s payrolls report was that the number was going to come in so hot that it would put extreme pressure on the Fed to taper its monetary support sooner than it might want to. Any rise in rates or less of an easy monetary policy is expected to have a bigger impact on growth stocks like Tech whose valuations tend to rely on hopes for bigger earnings down the road vs. now. Many expected that a strong jobs report could actually start to take the markets down because it would be such an inflationary number. Instead, Friday’s number, combined with the downward revision in the March jobs number to 770,000, means the Fed will likely need to see much more substantial progress on the employment situation before considering a change in monetary policy. 

The Sweet Smell of Victory: For a few weeks there, the Fed found itself on the defensive. As recently as the middle of last week, Fed Vice Chairman Richard Clarida was reassuring investors that it’s not time to talk about tapering monetary policy support for the economy and that he doesn’t see the economy overheating, Reuters reported. The market—judging by Treasury yields—seemed to be partially buying what the Fed was selling. The 10-year yield never bounded back up above 1.7% like it did in March, but it didn’t go much below 1.6%, either. And Fed funds futures, which hint at the market’s expectations of possible future rate hikes, saw those chances inch up slightly, going briefly into double-digits.

That all changed with the jobs report, and high-ups at the Fed must have spent the weekend feeling vindicated. Those weak jobs growth numbers weren’t good to see from the perspective of getting more people back to work, but they certainly took the pressure off the Fed for now and might erase talk of an imminent tapering. We don’t appear to have as many people employed as we thought, so basically the message to the Fed could be that it’s OK for them to keep the party going. Meaning continued easy monetary policy. 

Job Hunting: Tomorrow’s Job Openings and Labor Turnover Survey (JOLTS) report could shed light on how many employees companies are looking for. The data are a bit old, from March, but in February it was high at a seasonally adjusted 7.36 million, above the same level in the pre-Covid era a year earlier.

That’s especially worth thinking about when you consider that the four-week moving average for initial jobless claims decreased by 61,000 to 560,000 last week. That’s the lowest level since March 14, 2020, according to research firm If that date stands out, it’s because it coincides pretty much with the start of last year’s lockdowns. Initial claims soon rose to one million and above, which were levels no one had ever seen. 

We’re back about halfway, so the job situation appears to be improving, even if not every report looks amazing. Economic growth is never a straight line. Next months’ payrolls report should be very interesting to see if any of those new jobs show up.

Good Trading, 



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Price Check: Inflation Reports Could Take Center Stage After Sluggish Jobs Read

This week’s economic calendar. Source:

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