After a streak of positive jobs data, April’s payroll numbers MASSIVELY missed expectations.
The economy adding just 266K jobs during the month vs an expectation of nearly 1M. In short, this was one of the largest downside misses on record. The economy is still more than 8 million jobs short of the pre-pandemic levels and the unemployment rate ticked up a notch to 6.1%. The good news is we do not see this as that big of a deal given the context of other positive economic data. Jobs had been growing at an unsustainably fast rate, so taking a breather like this isn’t a problem… unless it happens again.
Following the cruddy April’s jobs number, the optimism surrounding equity markets stumbled. Fears related to inflation have continued to be the main driver of volatility (and will likely continue to do so for the next number of months). The latest inflation numbers should be taken with a grain of salt given the economic shutdowns, but that does not soften the blow that consumers are facing. By the numbers, inflation rose by 0.8% over the month and 4.2% over the last year. We continue to see inflation fears as something to monitor, but much of the increase over the last month may be temporary. For example, used cars and rental cars were among the biggest inflationary increases as rental car companies rushed to rebuild their inventories after liquidating portions of it to stay afloat during the crisis.
Fears of rising rates (because of inflation) continue to take their toll on tech and growth-oriented stocks with the NASDAQ Composite Index shedding most of their year-to-date gains over the course of the first two weeks in May. Although we did see similar action in February when the NASDAQ fell over 10% from mid-February to early-March, only to recover its gains over the next month and a half. Is investing in growth/tech dead? We don’t think so, but the next few months could continue to be pretty rocky.
A hacking attack disrupted the Colonial pipeline that serves most of the east coast, causing shortages of gasoline, long lines, and cases of hoarding and panic-buying across the region. The ransomware attack forced the pipeline to shut down completely and took a $5 million dollar payment to the hackers to resolve and resumed operations nearly a week following the attack. This will also create a temporary spike in energy inflation that we expect to be transient.
Bottom line: The road to normalcy continues to be bumpy, so please set your expectations for elevated levels volatility in markets throughout 2021. Vaccination rates have slowed but are still climbing. That fact and infection rates trending down in every state give us cautious optimism that the next month or two will allow for a complete reopening of the economy. If that can happen, we can begin to see inflation subside and potentially see less volatile markets.
1Source: U.S. Bureau of Labor Statistics, Employment Situation Summary
2 Source: Bloomberg
3 Source: U.S. Bureau of Labor Statistics, All Employees, Total Nonfarm, retrieved from FRED, Federal Reserve Bank of St. Louis
4 Source: U.S. Bureau of Labor Statistics
5 Source: Colonial Pipeline Paid Hackers Nearly $5 Million in Ransom. Bloomberg