What to watch this week with markets and the economy

Employment data due

One focus of the coming week is expected to be on employment data with the February jobs report due out Friday.

It comes after a much stronger-than-expected January report. This time, the number of jobs added, or nonfarm payrolls, is expected to be more than half of January’s 353,000 jobs.  The consensus among economists is that the February unemployment rate should remain at 3.7%. The Labor Department also told us the official number of jobless was little changed at 6.1 million persons to begin the year.

Along with those data points, wage growth will also be scrutinized. In the January release, average hourly earnings were up 4.5% over the previous year. This indicates that wage growth is outpacing inflation in real-time. With historically high inflation, Americans have lost about one-fifth of their buying power since January 2020. That's real and the challenges are lingering.

 Ahead of the February jobs report, the Labor Department releases JOLTS, which stands for the job openings and labor turnover summary. In the previous read, job openings were little changed as of the end of December at just over 9 million.  That’s compared to 11.2 million in December 2022, but still well above pre-pandemic levels. The peak topped 12 million in March 2022 (see chart).

Taken together, this suggests there were about 1.5 jobs open for every unemployed person in the U.S.  

Other data points due in the coming week include the private payrolls report from ADP, job cut announcements from Challenger, Gray & Christmas and the weekly unemployment claims data.  

The Chair takes the chair on Capitol Hill

After a series of Federal Reserve officials spoke last week urging patience about potential interest rate cuts this year, a rare occurrence appears to have emerged.  Financial markets appear broadly aligned with the guidance given most recently by FOMC officials on the direction of rate cuts. Specifically, the outlook coming out of the December FOMC announcement was for three cuts in 2024. After some misalignment on the matter, that appears to be what is priced in, based on fed funds futures via the CME Watch Tool. The surprisingly firm Consumer Price Index report released last month, followed by the release of the Personal Consumption Expenditures price index (preferred by the Fed) helped to reset expectations for fewer rate cuts than investors had previously been penciling in.  

That should suit FOMC officials just fine going into their March 20th announcement.  This week, Chairman Jerome Powell delivers two days of testimony before House and Senate panels, where he is sure to be drilled on the outlook for interest rates.  

Stocks march higher to begin March

The week saw a new record high close for the Nasdaq Composite for the first time in more than two years, and the S&P 500 had a repeat performance on the first trading session of the month. The so-called blue-chip indices had previously notched record closes.

Contributing to the advance, Nvidia ended Friday’s session with a market capitalization topping $2 trillion. In the bond market, the yield of the 10-year Treasury slipped to 4.19%, the lowest in a couple of weeks.

I asked veteran stock market watcher Sam Stovall , Chief Market Strategist for CFRA Research, about the sustainability of the advance and whether it could broaden out.

Sam told me, “The market does appear to be broadening out, rather than topping out, adding to underlying investor optimism. The table below shows that more than 70% of the 153 sub-industries in the S&P Composite 1500 (consisting of the large-cap 500, MidCap 400, and SmallCap 600) are above their 10-week (50 Day) and 40-week (200-day) moving averages, and 64% are above both, with all three indicators well above their long-term averages.”

Sam adds that with the S&P 500 ending higher in both January and February, good things could still be in store for the full year based on historical evidence. We add the disclosure: Past performance is no guarantee of future results.

Some debate the similarities and differences between the latest advance, paced in part by the enthusiasm around artificial intelligence (AI), and the technology-fueled gains from 1995 to 2000 ending with the dot-com implosion. The resolution of that debate will only be known over time.

Another slice of the market to watch is small-cap stocks. The Dow is up 17% over the past year. The S&P is up 27% and the Nasdaq Composite is up 39% over the same period. Yet the Russell 2000 index has gained less than 8% over the past year.

On a somber note, regional banking stocks have returned to the spotlight. New York Community Bancorp shares lost one-quarter of their value Friday after its credit rating was cut to junk status. The bank said it found “material weaknesses” in internal controls and named a new president and CEO. Concerns have been running high that some small and regional banks face risks because of exposure to commercial real estate loans, particularly those involving office space.

Trending story: Catch up on the difficulty Americans have buying a home right now

Did you see our piece about the challenges associated with housing affordability? A new Bankrate survey finds a majority of Americans cite 1) the cost of living being too high or 2) their income isn't high enough to afford down payment closing costs for a home purchase.

Please let me know your thoughts about the economy, personal finances, or any other subjects we discuss in this space. Do you have a tip based on your experience that might help someone else?

A relevant quotation of note:

“Money is a stupid measure of achievement, but unfortunately it is the only universal measure we have.” – Charles P. Steinmetz, American mathematician, and electrical engineer. He is credited with helping to develop alternating current (AC), which led to the expansion of the U.S. electric power industry.

Mark Hamrick is the senior economic analyst and Washington Bureau Chief for Bankrate.com. He is also a former President of the National Press Club as well as of SABEW, the Society for Advancing Business Editing on Writing. Highly sought-after, Mark is on radio/audio, television/video and appears in print hundreds of times a year to provide insights on the economy, personal finance and related issues.

Find Mark on other platforms @Hamrickisms.