Stock bulls are hoping to keep the upward momentum going as a weaker-than-expected April jobs report boosts Wall Street’s outlook for Federal Reserve interest rate cuts.

The jobs report, released on Friday, showed +175,000 jobs added in April, nearly -75,000 short of Wall Street estimates and a retreat from over +300,000 last month. The unemployment rate ticked up to +3.9% versus +3.8% last month and higher than forecast.

Importantly, wage gains slowed down to an annual rate of 3.9% vs +4.1% previously. The Federal Reserve has place a lot of focus on the strong labor market and its contributions to inflation, especially the pace of wage gains that hasn’t fallen below +4% since June 2021.

Bulls believe the report confirms that the “disinflation” trend is back on track after a burst of stronger-than-expected growth in the first quarter. In turn, many bulls believe that data in the weeks and months ahead will allow the Fed to cut rates as forecasted.

The Fed’s most recent projection was for three 25 basis point rate cuts by the end of 2024 but strong Q1 data prompted Wall Street to walk expectations back to just one or none before the April jobs report.

Traders have now somewhat boosted the odds for a July rate cut (around 32% vs 28% last week) but the highest odds are still on September or November. Odds also now favor two 25 basis point cuts in 2024 versus just a single cut.

The bears are warning that one month of data does not mark a “new trend” and that the cooldown will need to be backed up by a couple of more months of similar data.

Some bears also warn that the dramatic slowdown in the job market could be sign of bigger trouble ahead. Meaning the job market might be cooling too much, which could ultimately weigh on consumer spending and economic growth.

Today, investors are interested in the Fed’s “Senior Loan Officer Survey” which tracks credit conditions for both businesses and consumers.  

On the earnings front, Q1 2024 results so far are better-than-expected with S&P 500 companies reporting earnings growth of +5.0% versus +3.5% at the start of last week.

That’s also the highest earnings growth rate since Q2 2022. Microchip Technology, Palantir, Simon Property, and Tyson are today’s highlights.

I should note, the earnings headlines will be fewer this week but the trade will be hearing a lot more talk from Fed officials. It will be interesting to see how the trade reads between the lines and interprets the rhetoric. A more hawkish tone by the Fed more than likely brings pressure to the overall market, whereas a more dovish tone by the Fed will make the market rally. As the Fed winds blow so goes the market... 

Is Buffett's Billions in "Cash" at Berkshire a Bearish Signal?  Berkshire Hathaway's cash pile hit another record high in the first quarter of $189 billion, the industrial giant said in its earnings release on Saturday. That massive cash war chest will likely reach $200 billion by the end of the current quarter, Buffett told shareholders. Berkshire’s decision to reduce its stake in Apple and boost the company’s cash position is a move that Buffett says makes sense given the current macroeconomic environment. I don’t think anyone sitting at this table has any idea how to use it effectively, and therefore we don’t use it, Buffett said in response to a shareholder question of why Berkshire isn’t putting the cash reserve to work. Berkshire reduced its position in Apple by about 13% during the first three months of the year, marking the second quarter in a row that the conglomerate reduced its stake in the iPhone maker. As of March 31, Apple accounted for about 40% of Berkshire’s vast stock portfolio, worth a total of $135.4 billion. The legendary investor was also quick to reassure shareholders as to his confidence in Apple. At the end of the year, I would think it’s extremely likely that Apple is again the largest common stock holding we have, Buffett told a packed house, which included Apple CEO Tim Cook.  Source Yahoofinance

Drunk Driving Arrests Are Down While Deaths Are Up:  Drunken-driving deaths in the U.S. have risen to levels not seen in nearly two decades, federal data show, a major setback to long-running road-safety efforts. At the same time, arrests for driving under the influence have plummeted. About 13,500 people died in alcohol impairment-related crashes in 2022, according to recent data released in April by the National Highway Traffic Safety Administration. That is 33% above 2019’s toll and on par with 2021’s. The last time so many people died as a result of accidents involving intoxicated drivers was in 2006. Federal Bureau of Investigation figures show. They dropped from just over a million in 2019 to about 780,000 in 2020. The FBI said there were 788,000 such arrests in 2022, the latest data available. Source WSJ

Hamas Rocket Barrage Threatens Cease Fire with Israel: Israel closed the Kerem Shalom humanitarian crossing into Gaza on Sunday after a rocket barrage was fired by Hamas from the southern Gaza city of Rafah, in an incident that could imperil delicate hostage and cease-fire negotiations. Israel and Hamas have been negotiating for weeks through mediators toward a potential truce that would include the release of hostages held in Gaza and of Palestinian prisoners held in Israel. At the same time, Israel has threatened to launch an operation in Rafah, where it says Hamas battalions remain intact, and where hundreds of thousands of Palestinian civilians are sheltering. The Israeli army said about 10 projectiles were fired at Kerem Shalom, a corridor for humanitarian aid transfers that US Secretary of State Antony Blinken visited last week. Hamas’ military wing claimed responsibility for the attack, which Israel’s Foreign Ministry said in a social media post injured seven people. The attack came hours after Prime Minister Benjamin Netanyahu said Israel is prepared to temporarily halt the war in Gaza to gain the release of the hostages held there, but won’t agree to the Hamas demand to end the war completely.  Source Bloomberg

Kentucky Derby Payouts After “Mystik Dan’s” Upset Photo Finish Win: In a thrilling race that ended in a photo finish, "Mystik Dan," ridden by American jockey Brian Hernandez Jr., emerged as the champion of the 150th edition of the Kentucky Derby on Saturday. It was a race filled with suspense and excitement as Mystik Dan narrowly edged competitors Sierra Leone and Forever Young, securing victory by mere centimeters at Churchill Downs. Despite not being among the favored contenders, Mystik Dan defied the odds with a stunning performance, clinching the prestigious horse race with odds of 18-1. There was a $5 million prize purse up for grabs at this year's Derby, which is distributed among the first five finishers, $3.1 million went to the victor, Mystik Dan, with $1 million due to the runner-up Sierra Leone, and $500,000 to third-place finisher Forever Young. The horse’s owner typically takes home 80% of the payout, with 10% each shared out to the jockey and the trainer. Those who placed bets on the right horses also took home some prize money. Accoridng to Churchill Downs, wagering from all sources on Derby Day set a new record of $320.5 million, beating last year's record of $288.7 million. The Derby itself had $210.7 million bet on the race, with $10 million of that coming from Japan. In case you are wondering, if you would have bet a $100 trifecta you could have won $111,384.00. Or a $100 superfecta, with fourth-place finisher Catching Freedom joining the top three, would have paid $825,407.00. Wow!   Source ESPN


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