For traders, the news cycle last week was dominated by the Federal Reserve as well as the April jobs report. On Wednesday, the Federal Open Market Committee (FOMC) met to announce an increase in the federal funds rate. The rate now sits at 5.25 percent, which is an increase of 25 basis points from March when the federal funds rate was set at 5 percent.
In prepared remarks, Fed Chair Jerome Powell said that there had been no decision made about a possible pause in interest rate hikes. It was expected that the May meeting would represent the final hike in the cycle before the Fed paused to evaluate the impact that rates were having on the broader market. However, the FOMC statement released on Wednesday did acknowledge that the hiking cycle was closer to the end than the beginning.
There was also an acknowledgement that recent stress in the banking sector would likely lead to a tighter credit market. It’s believed that stricter lending rules are equivalent to an additional 50 basis points of interest rate hikes.
Markets had been mostly flat on Wednesday prior to the news but experienced accelerated losses late in the trading session. The Dow had reached a daily high of 33,721 at 12:45 p.m. on May 3 but finished the session at 33,456. The S&P 500 was at 4,132 at 1:45 p.m. but finished the session at 4,099. The NASDAQ reached its daily high of 12.179 minutes after the news was released but also the day lower at 12.041.
On Friday, the Nonfarm Employment Change report from the Bureau of Labor Statistics (BLS) was released. It showed that the economy created 253,000 jobs during the month of April, which was well above the estimate of 181,000 jobs gained during that period. It was also revealed that average hourly earnings increased by .5 percent while the unemployment rate remained nearly unchanged at 3.4 percent. Analysts believed that average hourly earnings would increase by .3 percent while the unemployment rate would be 3.6 percent.
These figures are one of the reasons why the Federal Reserve was noncommittal about future interest rate hikes. Many economists believe that these figures indicate that the economy is still hot and that inflation is still a problem that has yet to be solved.
Major markets generally took the news positively as the NASDAQ jumped roughly 150 points to close the week at 12,235. The Dow 30 jumped about 200 points to finish the week at 33,674 while the S&P 500 was up about 30 points on the day to finish at 4,136. The NASDAQ finished the week up 0.25 percent while the Dow and S&P 500 were down 1.35 percent and 0.82 percent, respectively.
While the FOMC statements and BLS reports were among the biggest headlines of the week, they weren’t the only items released this week. On Monday, the Institute for Supply Management (ISM) released the monthly PMI survey results. The April result was 47.1 percent, which is slightly higher than the 46.3 percent reported a month ago. However, a figure under 50 percent means that the manufacturing sector is likely contracting.
Prior to the FOMC meeting on Wednesday, the ISM released its services PMI figure, which was 51.9 percent in April. That was higher than the estimated 51.8 percent and last month’s figure of 51.2 percent. The ADP nonfarm employment change report was also released on Wednesday and found that 296,000 jobs were added to the economy in April compared to an estimate of 148,000.
On Thursday, unemployment claim data for the past week was released. During the final week of April, there were a total of 242,000 claims made as opposed to an estimate of 239,000 claims during that period.
Several key reports are scheduled to be released next week including Core Price Index (CPI) and Producer Price Index (PPI) figures. These reports will provide important clues about inflation in the United States, which will likely influence future interest rate decisions.