Weekly Market Recap (March 4-8, 2024)

US Equity Indexes Decline This Week as Fed Chair Powell, Jobs Report Offer Mixed Views on Economy

US equity indexes ended the week lower as February’s mixed payrolls report outweighed Federal Reserve Chair Jerome Powell’s more benign message reiterating policymaking will remain data-dependent.

The Dow Jones Industrial Average closed at 38,722.69 on Friday, down from 39,087.38 a week ago. The S&P 500 closed at 5,123.69, compared with 5,137.08 a week earlier. The Nasdaq ended at 16,085.11 versus 16,274.94 a week earlier.

“The policy rate is likely at its peak for this tightening cycle,” Powell said in his semi-annual Congress testimony. “It will likely be appropriate to begin dialing back policy restraint at some point this year.” Powell said the FOMC would act “carefully” in reducing rates because the economic outlook is “uncertain and ongoing progress toward our 2% inflation objective is not assured.”

Those comments proved prescient as February nonfarm payrolls data landed mixed, with stronger-than-expected job additions in February accompanying an increase in the unemployment rate to a two-year high. Notably, January’s payrolls were revised down substantially. While February’s consumer and wholesale price inflation reports are due next week, the January readings were higher than forecast.

The artificial intelligence trade that helped markets earlier in the week took some of the gains away on Friday, with Nvidia (NVDA) slumping 5.5% at the close on Friday.

Canada: The TSX is up 0.86% last week after touching near record highs on Friday.

What to look for this week: A housing market update will be provided with the release of February’s housing starts this Friday, National Bank said if recent data on residential permits is any guide, the latter could have edged up to 225.0K (seasonally adjusted and annualized), as a gain in the multi-family segment was probably partially offset by a decline for single-family units. This week will also feature the release on Thursday of January’s manufacturing sales, which could have expanded 0.4% on gains in the transportation equipment and machinery subsectors.

Even with Friday’s down day, the TSX is up 1.8% month to date, while in the U.S. the S&P 500 was only up 0.6%. Gillian Wolfe of Bloomberg Intelligence told BNN most of the outperformance in Canada was down to a “powerful rebound” in the Materials sector, which had been “dragging the market down for most of the start of the year.” Gold closed at another record high on Friday, climbing again following five days of gains after an unexpectedly robust U.S. jobs report may delay a cut to interest rates, pushing the dollar lower. Gold for April delivery closed up $20.30 to US$2,185.50 per ounce. But West Texas Intermediate crude oil closed lower on robust supply, even as demand remains solid and as the U.S. added more new jobs than expected last month, showing its economy remains robust despite high interest rates.

On the rates path conundrum, maybe Douglas Porter at BMO Economics caught the mood best in his weekly ‘Talking Points’ note. In it, he noted, central banks “continue to preach patience on the prospect of rate cuts, albeit while also dangling tantalizing hints that it may be only a matter of time”. Porter said the February jobs data mostly delivered the same message, with both the U.S. and Canada reporting above-consensus employment gains — hence, the need for patience — but also an uptick in unemployment and “calmer” wage growth — hence, the prospect of rate cuts. Porter added: “Rare is the day that the dual North American job reports are in sync, but this may have been one of those days. Both were flashy on the surface, suggesting zero stress in the economy, but both had rather obvious details that were far from stellar.”

For his part, Derek Holt, Vice-President & Head of Capital Markets Economics at Scotiabank, noted Canada added another 40,700 jobs in February. Holt said while the “details were mixed, they were good enough and the job market remains resilient”. He noted wage growth rebounded and is still outpacing inflation and productivity. And he noted hours worked are indicating that Q1 GDP is “on track for a solid rebound that could at least halt progress toward opening disinflationary slack, if not reverse it”. Overall, Holt added. this is a strong set of numbers that further leans against any rush for the BoC to ease.

Weekly Market Recap (March 4-8, 2024)