Stocks Flip Midday to Finish with Solid Gains…..

U.S. equities bounced off their lows of the day to finish off a volatile week higher, as investors weighed an early sign of a recovery in the struggling leisure and hospitality sector that led to stronger-than-expected February employment growth. The spike in Treasury yields that has pressured growth and momentum stocks, notably Information Technology issues, cooled a bit in the wake of the upbeat labor report, while the U.S. dollar added to a recent rebound to a two-month high. Gold was slightly higher in choppy trading and crude oil prices continued to rally, bolstered by yesterday’s surprise OPEC+ decision to hold production unchanged for April. On the equity front, Costco Wholesale missed earnings forecasts on COVID-19 wage increase expenses, Broadcom offered upbeat results and guidance, and Gap provided a favorable outlook for the second half of 2021. Europe finished lower, as an early boost from the favorable U.S. employment report was trumped by uneasiness over the continued rise in interest rates, while market in Asia were lower.

The Dow Jones Industrial Average rose 572 points (1.9%) to 31,496, the S&P 500 Index gained 73 points (2.0%) to 3,842, and the Nasdaq Composite was up 197 points (1.6%) at 12,920. In heavy volume, 1.4 billion shares were traded on the NYSE and 7.6 billion shares changed hands on the Nasdaq. WTI crude oil jumped $2.26 to $66.09 per barrel. Elsewhere, the Bloomberg gold spot price inched $0.88 higher to $1,698.40 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.3% to 91.92. Markets were mixed for the week, as the DJIA gained 1.8%, the S&P 500 added 0.8%, while the Nasdaq Composite fell 2.1%.

February employment growth tops forecasts, trade deficit widens, consumer credit falls…..

Nonfarm payrolls rose by 379,000 jobs month-over-month (m/m) in February, compared to the Bloomberg consensus estimate of a 200,000 increase, and following January’s upwardly adjusted gain of 166,000. Excluding government hiring and firing, private sector payrolls increased by 465,000, versus the forecasted rise of 200,000 after rising by an unrevised 6,000 in January. The labor force participation rate remained at January’s 61.4% rate, matching forecasts.

The U.S. Department of Labor’s report showed most of the job gains occurred in leisure and hospitality, with smaller gains in temporary help services, health care and social assistance, retail trade, and manufacturing. However, employment declined in state and local government education, construction, and mining.

The unemployment rate dipped to 6.2% from January’s 6.3% rate, where it was expected to remain. The underemployment rate—including total unemployed and those employed part time for economic reasons, along with people who are marginally attached to the labor force—remained at the prior month’s 11.1% rate. Average hourly earnings rose 0.2% m/m, in line with projections and versus January’s downwardly revised 0.1% increase. Y/Y, wages were 5.3% higher, matching estimates. Finally, average weekly hours declined to 34.6 from January’s downwardly revised 34.9 rate, where it was expected to remain.

The trade balance showed that the January deficit widened more than anticipated, coming in at $68.2 billion, compared to forecasts of $67.5 billion, after December’s upwardly revised deficit of $67.0 billion. Exports rose 1.0% m/m, and imports increased 1.2%.

Consumer credit, released in the final hour of trading, showed consumer borrowing declined by $1.3 billion during January, well short of the $12.0 billion increase that was forecasted of economists polled by Bloomberg, while December’s figure was adjusted downward to an expansion of $8.8 billion from the originally reported $9.7 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose by $8.5 billion, a 3.2% y/y rise, while revolving debt, which includes credit cards, declined by $9.8 billion, a 12.2% y/y fall.

Treasuries were mixed following the employment data as the choppiness in the market remained, with the rate on the 2-year note little changed at 0.15%, while the yield on the 10-year note ticked 1 basis point higher to 1.57%, and the 30-year bond rate declined 2 bps to 2.29%.

Treasury yields moved noticeably higher yesterday in the wake of Fed Chairman Jerome Powell’s comments in a virtual event with the Wall Street Journal. Powell acknowledged the recent rise in rates and noted short-term inflation pressures will remain due to base effects on the heels of the year ago drop in prices amid the pandemic. However, he appeared to unnerve some by not offering plans on how the Central Bank will combat the rising rate and increasing inflation expectation environment. He reiterated that that the economy is a long way from its employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.

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