Jobs Data Disappointed…Earnings Season Commences…Are Markets Becoming Nervous Over Rising Geopolitical Tensions?

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By: Kent Engelke | Capitol Securities

The March jobs data disappointed even as the jobless rate dropped to the lowest level in almost a decade. Creation of non-farm and private sector jobs greatly missed its mark and the wage gains slowed. Like most, I thought the data would contain an upside surprise given the strength of the ADP data. The LPR matched expectations of 63%.

Some are blaming March’s winter storm that dumped a lot of snow over the northeast during the reference period. Others are pointing to the return of more seasonable temperatures after an unusually warm February that may have skewed earlier data.

At this juncture, the report does little to alter monetary expectations. What about profit and growth expectations?

First quarter earnings season commences this week. According to Bloomberg, there are only 83 companies that have published profit guidance of any variety, the least at this time of year since Bloomberg began compiling the data in 1999.

The number of firms reflects a decade-long trend away from guidance and the current quarter is the sharpest on record. Guidance is down 35% from a year ago and tails an average of 150 at this time in the past five years according to Bloomberg.

The general rule of thumb is bad news gets announced early rather than later, thus suggesting nothing has significantly changed since the fourth quarter and the trend is improving.

Many times I have commented about earnings estimates, as to how they have been dumbed down, partially the result of Sarbanes Oxley. I have also opined that such an environment creates an unbalanced atmosphere, defined as all are expecting greater than expected results and if such results do not occur, volatility may increase.

Volatility, since March 1st, has been virtually nonexistent. Bloomberg further states the S & P 500 has been confined to a narrow 55 point band, the lowest realized volatility for this period since 1965.

I will argue however, the volatility within the sectors of the S & P 500 has been intense as the Trump trade has all but been unwound in favor of yesterday’s must own mega capitalized growth issues.

Changing topics, what will be the ramifications of the Syrian missile strike in response to the chemical weapons attack? If all recall, under the Obama administration, an agreement was made in 2013 that Russia would chemically disarm Syria. The global response has been what most would have expected. Will Syria continue to be a geopolitical non-event or evolve into something of significance?

It is my firsthand experience that the event that becomes significant is one that no one had remotely thought was going to occur.

Commenting upon Friday’s market activity, there was little reaction to the employment data, the Syrian reprisal or the meeting between Trump and his Chinese counterpart.

The economic calendar has several inflationary and sentiment data points as well as retail sales statistics. Moreover, equity markets are closed Friday for Good Friday. Will the data influence inflationary and growth assumptions?

Last night foreign markets were down. London was down 0.14%, Paris was down 0.55% and Frankfurt was down 0.19%. China was down 0.52%, Japan was up 0.71% and Hang Sang was down 0.02%.

The Dow should open nervously unchanged on the escalation of global tensions. The 10-year is unchanged at 2.39%.

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