Personally, I felt Wall Street made a big fuss over nothing last week. None of the newly proposed tariffs have actually been implemented yet. So I hope you didn’t knee-jerk react like so many other investors did. Hopefully, you sat tight with your current holdings and only trimmed stocks with lesser fundamentals. Especially since this week is already off to a better start. In today’s blog, we’ll take a look at what’s helping jump start the market right now.
The bottom line is that the S&P 500 has retested its February lows several times. And during these retests, the S&P 500’s dividend yield crossed above 2%. This is important because the S&P 500’s yield is taxed at a much better rate than the 10-year Treasury bond yield, so the stock market was naturally "catching itself" on the recent pullbacks.
It also didn’t hurt that the economic news was relatively positive last week, which helped investors refocus on real news rather than scare tactic headlines. On Friday, the Labor Department reported that March payrolls rose by 103,000, well below economists’ estimates for 178,000. That was the smallest payroll increase since September 2017. The unemployment rate, though, remains at a 17-year low of 4.1%, and average hourly wages increased modestly by $0.08.
I should add that ADP reported that the private sector created 241,000 new payroll jobs in March, which was substantially above economists’ consensus estimate of 185,000. This also represented the fifth-straight month that the private sector created jobs in excess of 200,000. The good news is that the Fed tends to follow the Labor Department’s payroll figures, and as a result, it will likely postpone another key interest rate increase until there is more robust job growth.
In addition, the Commerce Department announced that the U.S. trade deficit rose 1.6% to $57.6 billion in February, which is the highest level since October 2008. Exports rose by 2.3% in February to $137.2 billion, while imports rose by 1.6% to $214.2 billion. Typically, as the U.S. economy strengthens, the faster the trade deficit rises. So robust GDP growth seems to be the primary reason for a larger trade deficit.
Looking forward, I expect that the stock market will continue to refocus on the real news stories. In fact, after Mark Zuckerberg testifies in front of Congress about Facebook’s data-selling practices this week, I look for the financial media to turn its attention to corporate earnings. The first-quarter earnings season will get underway next week, and the media will not be able to ignore the phenomenal results that will be reported.