Markets pulled back last week as investors reacted to several disappointing economic reports and expressed concern that a spring swoon is around the corner. For the week, the S&P 500 lost 1.0%, the Dow trimmed 0.1%, and the Nasdaq fell 1.9%.[i]
The big news last week was Friday’s job report, which showed a drop in the overall unemployment rate from 7.7% in February to 7.6% in March. However, much of the drop can be attributed to discouraged job seekers who stopped looking for work rather than organic job creation. Unfortunately, the economy only added a disappointing 88,000 new jobs in March, about half the number economists were expecting.[ii] Earlier in the week, payroll processor ADP released a report showing that private employers added just 158,000 jobs in March, missing expectations of 200,000 new jobs.[iii] Despite the poor data, it’s usually unwise to read too much into a single report, since monthly job data is notoriously volatile.
In Washington, President Obama announced his intention to offer cuts to Social Security benefits and other government programs as a concession to Congressional Republicans, though no plan is final. While the White House's proposal could help to cut the federal deficit by $1.8 trillion over the next decade, it definitely has some drawbacks.[iv] All political affiliations aside, cuts to any programs are bound to be painful, but may also be necessary to get U.S. spending back on track. All this back-and-forth we are seeing is a sobering reminder of how much work still needs to be done to get the nation’s fiscal house in order; there is still a long road ahead.
Looking forward, investors will be watching first quarter earnings reports (which will start trickling in this week) and economic data to get a sense of how the economy is doing. Should initial earnings reports show weakness, stocks could experience further downside, though short-term consolidations are a common occurrence of healthy markets, and should not be viewed as a cause for alarm.
ECONOMIC CALENDAR:
Wednesday: EIA Petroleum Status Report, FOMC Minutes, Treasury Budget
Thursday: Jobless Claims, Import and Export Prices
Friday: Producer Price Index, Retail Sales, Consumer Sentiment, Business Inventories
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.