Disappointing Jobs Report That the Market Liked?
Last week we focused on the investing adage "Sell In May and Go Away," which does not really work most of the time. Summer months in the market can produce lackluster returns in some years as investors go on vacation and trading volumes tend to relax. This year, however, we do have some interesting external forces occurring at the same time. There is clearly a labor shortage - rather, a labor incentive shortage - causing businesses to lack the hands-on-deck they need to meet pent-up demand. As a result, companies are offering more pay and added bonuses to entice people to come back to work. Chipotle, as one of the more interesting offers, is advertising free college tuition to employees who work at least 15 hours per week after four months on the job.
The current labor shortage is being driven, not by a lack of job openings - which stands at 7.3 million potential positions - but, rather by the continuation of COVID benefits keeping future employees at home rather than the 8-to-5 job. More than 6 million people are still receiving some type of continued COVID jobless benefit. This was born out in last week's Jobs Report as the number missed expectations by more than nearly 600,000 jobs. This labor shortage is also lending itself to the current supply shortage in the US. The best intentions of our fearless leaders have led to a situation that could force the Fed's hand soon as inflationary pressures are now hitting all cylinders. Pent-up demand, coupled with lower supply, rising wages, and rising prices at the pump could all aid in inflation taking off. We will get a glimpse of that this week as both CPI & PPI are released on Tuesday & Wednesday, respectively.
As corporate earnings continue to roll on, the 1st quarter of 2021 may be one for the record books. S&P 500 companies are beating earnings expectations in record numbers with more than 80% of companies having already reported. The consumer is the other key element to watch for this week as Consumer Sentiment, Retail Sales, and Jobless Claims will be releases of interest this week. Tomorrow, the NFIB Small Business Index will tell us how optimistic small business owners feel in an economy where labor is scarce, demand is high, and corporate taxes could be on the rise. Meanwhile, "growth" stocks are giving way to "value" stocks as there appear to to be more attractive names at lower valuation levels.
On the pandemic front, we are seeing a slight uptick in the number of vaccine shots administered in the US over the last three days, after hitting a 3-month low of less than 1 million shots given on May 4th. All three vaccines - Pfizer, Moderna, and J&J - all saw slightly higher demand over the last 7 days. More than 152 million people in the US have received at least one dose, while at the same time, the positivity rate from COVID tests hit a new low of 3.3%. India could be turning the corner as Cases and Deaths seem to have peaked last week. Time will tell, but the mortality rate from COVID in India is still one of the lowest in the world at 1.1%.
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