Since our February 11th lows, US equity markets have regained their footing in a meaningful way. Of course a great deal of the rebound that has materialized since then has come as a result of crude's 33% gain in the same period, the dramatic rebound in Asian equity markets, Chinese specifically, and clear indications that the US economy is continuing to expand.
In the case of US economic data, last Friday's GDP data came in at 1% - well above consensus for the period. Employment gains as measured by payroll or ADP have been consistent and positive.
Yesterday's ADP report was well above consensus at 215k versus 185k. Construction spending, released on Tuesday, reflected an uptick of 1.5% versus consensus calling for 0.5%. Auto sales are setting records, and consumer confidence, though having slipped recently, remains near multi-year highs.
This Friday's payroll data is expected to reflect a gain of 190k nonfarm payrolls while the official unemployment rate is expected to remain at 4.9%. Private payrolls are expected to grow by 183k. No meaningful change is anticipated in average hourly earnings or average work week components. The constructive economic landscape laid out in recent economic readings has clearly been a positive for investors, but has also been tame enough to keep the likelihood of a move by the Fed on interest rates this month below 25%.
Clearly, our economic expansion is continuing, if recent measures are any barometer. However, and just as important for investors, it is the muted nature of our expansion that is allowing for a discourse on the normalization of interest rates in an unpredictable fashion. This is keeping investors honest and Fed officials in charge. If employment gains remain in channel over the next 5 to 6 months, the odds are great that the Fed will likely move on rates after this month's FOMC meeting. That 3-month delay in the next move on rates will allow for investors to capture some of the compressed valuations that still litter the market landscape.
Further good news for investors comes in the form of the calendar. Since WWll, the month of March has ranked as the third best month of the year for stock performance - more than doubling the monthly average - according to S&P. Further, the small cap universe of stocks outperforms the broader S&P 500 in the same historic period. And finally, half of all 52-week lows occur in the first quarter of the year. In this year's case that would have been in mid-February.
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