Green Shoots in the Economic Data Support Economic Growth
Key Takeaways
- Technology continues to lead the market higher.
- Economic surprises hit two-year high.
- Job openings surge.
The S&P 500 finished the week up 0.5%. The record highs continue, but momentum has clearly slowed. The market continues to be driven by sizeable earnings reactions among large cap names. This week saw some big advances post earnings in the semiconductor and software space. Software has seen a big shift in sentiment in recent weeks even as semiconductors remained strong. Emerging markets continued to run with a 2.9% weekly advance. Core bond returns were flat on the week.
After the 30-year Treasury yield spiked to its highest level since 2007, bond yields have cooled in recent weeks. Lower oil prices have helped along with a slightly lower inflation reading from the Core PCE Index. The market is now pricing in a quarter-point increase to the Federal Funds rate over the next year. The ECB meets next week and has been the most hawkish regarding rising commodity prices. There is a 97% chance of a hike, and a lot will be riding on their forward guidance.
Job Openings on the Rise
This week the Citi Surprise Economic Index hit a two-year high. The Atlanta Fed GDPNow estimate sits at 3% against a consensus economic forecast at 2%. The economy continues to perform better than expected despite a weak housing market, low hire environment, and now elevated gas prices. Housing data missed this week as new home sales dropped 6.2% versus the prior month. This was offset by improving manufacturing surveys. The ISM Manufacturing New Orders Index printed 56.8, which is robust given the general level of pessimism about the economy.
Job openings garnered a lot of attention as they fell from nearly 12.5 million to 6.5 million over the last three years. Now that the series has turned, its message may be hiding under the radar. The survey suffers from low response rates and potential redundancy. If you believe the data, which goes back 25 years, then job growth is poised for a multi-year expansion. Job openings have risen 16% over the last four months. This is stronger than early business cycle expansions in 2003 and 2009. Only the COVID job bounce back was stronger. All three recessions in the last 25 years have seen job openings decelerate and go negative, yet now they are accelerating at levels signifying early cycle expansion.
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Sources: BTC Capital Management, Bloomberg
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