Investors took a breather this week as U.S. stocks bounced back from a weeks long selloff and the latest reading on inflation offered glimmers of optimism to those hoping for a peak in price pressures. Beneath the surface though, strong undercurrents of worry about inflation remain . April’s reading on the Federal Reserve’s preferred gauge showed inflation slowing, but it wasn’t enough on its own to settle the debate on where price rises go from here.
The ability of a single company like Target Corp. TGT or Snap Inc. SNAP to issue a missed-profit announcement or warning that triggers wider stock selloffs signaled a distinct shift in the market’s thinking toward the insidiousness of inflation, and may render parts of next week’s nonfarm payrolls report stale.
Ruesterholz said he expects payroll growth to fall to 275,000 in May from 428,000 in the prior month, which is below the consensus estimate for a gains of 325,000 jobs in a survey of economists by The Wall Street Journal. The data will be published next Friday. In addition, he says, the “market will probably brush off the payroll number,” while taking into greater consideration the reading on average hourly earnings, which he expects to moderate.
Meanwhile, “negative sentiment is going to be at play for a while,” Simons said. “Financial assets are going to look very, very cheap at some point and I think there will be some support for stocks even in a period where markets go sideways.” However, most of the move down in stock values “can be entirely explained by multiples going down, not earnings going down,” said Ed Al-Hussainy, a New York-based senior interest rate and currency analyst at Columbia Threadneedle Investments, which managed $699 billion as of March.