The stock market's rally should not be derailed by US economic data or Q123 corporate earnings over the next few weeks -- although there could be some pullback at the start of this week if some of Friday's bounce was just quarter-end window dressing. This week's key US economic data should be market friendly, based on the consensus estimates and risks surrounding them. Macro evidence suggests upside risk to the consensus estimate of Q123 corporate earnings.
Consensus expects the March Employment Report to be consistent with a slowdown rather than recession. Payrolls are seen slowing to +238k m/m from +311k in February. And, the Unemployment Rate is seen steady at 3.6%. The Claims data and other evidence support the expectation of a slowdown in Payrolls. Claims don't rule out a slight increase in the Unemployment Rate, as well. Consensus also looks for a modest 0.3% m/m increase in Average Hourly Earnings. Although this would be up from February's +0.2%, it would remain below the 0.4% average in Q422 and be consistent with the Fed's 2% inflation target (taking account of productivity). A near-consensus Employment Report should be viewed favorably by the Fed and keep open the possibility that it may not tighten further.
Consensus also expects to see evidence of slower growth in February Job Openings and the March Mfg ISM. Job Openings are expected to fall to 10.4 Mn from 10.82 Mn in January. The level would still be a above the 7.5 Mn pre-pandemic trend, but a decline would be in the right direction. Moreover, news reports suggest companies are keeping job openings listed even though they don't intend to fill them. So, the significance of the high level of Job Openings is somewhat suspect.
Consensus looks for a dip in the March Mfg ISM to 47.5 from 47.7 in February. Other manufacturing surveys, however, suggest an uptick. But, none is a reliable predictor. The historical cut-off point in the Mfg ISM between expansion and decline in the manufacturing sector is 48.7.
Consensus expects for S&P 500 corporate earnings to fall 7.4% y/y in Q123. This risks being too pessimistic. Economic growth improved both in the US and Europe on a y/y basis, which should have at least cushioned the drag from the Covid-related shutdowns in China during the quarter. Also, the stronger dollar became less of a drag on earnings abroad in Q123. And, profit margins may have been sustained, based on a comparison between Core CPI and Average Hourly Earnings (AHE). But, oil companies' profits were probably hurt by the drop in oil prices.
Macroeconomic Evidence Regarding Corporate Earnings
Markit
Eurozone Real GDP Oil Prices Trade-Weighted
Dollar AHE Core CPI PMI
[ y/y percent
change ] (level)
No comments:
Post a Comment