Stock investors continue to debate the odds of Fed rate cuts later this year as US wage gains rebound and inflation remains stubbornly elevated. The employment report on Friday showed payrolls increased by +253,00 in April, far higher than the median forecast. The unemployment rate also surprised, dropping down to a 54-year low of 3.4%. Importantly, average hourly earnings were much hotter than anticipated, increasing +0.5% for the month and bringing the year-over-year pace of wage gains to +4.5% versus +4.3% in March.

This is the first-time wages have ticked higher since November. None of these numbers point to what would be considered a "cooling" labor market and raises doubts about Fed rate cuts later this year. At best, bears argue that the April report supports the Fed's plan to keep rates "higher for longer" and keeps the threat of further rate hikes down the road in play.

Bulls are pointing to February and March job numbers that were revised downward by a combined -149,000 and a few other details that hint the labor market being weaker than the headline numbers reveal. However, the wage gain number is tough to overlook as this has been a major sticking point for the Fed. Remember, there is one more employment report before the Fed's next meeting on June 13-14 and the tide could obviously turn for the labor market in May.

One positive takeaway from the April report is that a strong labor market reduces the risks of a sharp economic downturn and fears about recession do seem to have come down a notch, at least temporarily.

Many on Wall Street worry that the bigger threat is "stagflation," aka high inflation combined with little-to-no growth and increasing unemployment. Stripping out food and energy prices, the so-called "core" inflation rate as calculated in the March PCE Prices Index has come down to +4.6% from a peak of +5.3% in February. However, it's been waffling between +4.6% and +4.7% since December of last year as inflationary pressures keep bouncing around between different sectors. Meaning just as inflation cools in one area, it starts to flare up in another.

This week will bring the first data on April inflation with the Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday. If the gauges fail to show any signs that inflation is slowing, the stagflation worries are likely going to intensify.

The only data of note today is the preliminary read on March Wholesale Inventories.

On the earnings front, the bulk of Q1 results are behind us with 85% of S&P 500 companies having reported, averaging an earnings decline of -2.2% versus -3.7% last week. BioNTech, KKR, PayPal, and Tyson report today.

Investors this week are also keeping an eye on Washington where lawmakers are still struggling to come up with a debt ceiling deal and prevent a potential US debt default. President Biden and leaders from both parties in the House and Senate are scheduled to hold talks on Tuesday. According to the US Treasury, the debt ceiling could run out of options to pay the country's debts by June 1. Stay tuned...

Larger Number of "Home Renters" Entering the Market: As uncertainty looms in the housing market, with consecutive Fed interest rate hikes, elevated mortgage rates, and record-high home prices, more potential home buyers are being forced into the single-family rental market. After a period of double-digit price growth in 2021 and 2022, single-family monthly rental rates increased from $1,880 to $2,330 at the close of the first quarter of 2023 (last week of March) compared to the same period in 2022. At the close of the quarter, the median national rent for single-family detached rental was $2,395, a +20% increase since the same period in 2021 and a +6% increase since the same period in 2022. In Naples, Florida, for example, median monthly rents went up +24%, from $4,637 to $5,756. Source USA Today

Getting Harder for Families to Cover Emergency Expenses: Ability to pay for an emergency expense with cash varied largely by demographics, high-income, white and baby boomer respondents were more likely than their demographic counterparts to say they could cover the cost of an emergency expense without any debt. In the first quarter of 2023, high-income earners were more than twice as likely as low-income adults to say they could pay for a $400 emergency expense with cash or equivalents. This gap narrowed in the second quarter, driven in large part by a 5% drop in the share of high-income adults who said they could pay for an emergency expense with cash. Fewer than half of U.S. adults said they could pay for a $400 emergency expense with cash based on their current financial situation in the first and second quarters of 2023. The fact that more than half of U.S. adults would need to use debt or would not be able to pay for a $400 emergency expense highlights how cash-strapped many Americans feel amid high prices and economic uncertainty Source Morning Consult

US Bank Lending Touches Record as Deposits Fall: Deposits at U.S. commercial banks fell toward the end of April to the lowest in nearly two years, data released on Friday by the Federal Reserve showed, while overall credit provided by banks moved up, led by a record level of outstanding loans and leases. Deposits on a nonseasonally adjusted basis fell in the week ended April 26 to about $17.1 trillion, a drop of about -$120 billion from the week earlier. That was the lowest level since June 2021, with deposits now having declined by more than -$500 billion from the week before Silicon Valley Bank (SVB) collapsed in March. After record deposit outflows, deposits had stabilized into early April. They picked up again in the latter half of April, a period that typically has large outflows from accounts as the annual tax filing season comes to a close. On a seasonally adjusted basis, which takes that pattern into account, deposits have changed little since the end of March. Meanwhile, total banking system credit has yet to show the contraction many economists and policymakers anticipate to develop after the recent banking system turmoil. Total banking system credit rose for a second week to $17.37 trillion led by an increase in loans and leases to a record high $12.11 trillion, on a nonseasonally adjusted basis, from $12.07 trillion in the previous week. Nevertheless, loan growth has flattened out in recent months: the annual growth rate has cooled from a double-digit pace late last year to about +9% as April was ending. Source Reuters

Why a Higher Labor-Force Participation Rate Could be Bad News: In April, 83.3% of Americans in their prime working years, ages 25 to 54, were employed or seeking jobs, the highest share since 2008 and a sign that strong demand and rising pay is drawing many off the sidelines–but also suggesting that it could get more and more difficult for employers to add staff. While there are more Americans working than before the pandemic, some sectors still haven't caught up. With unemployment so low, it could be especially difficult for employers in those sectors to grow their payrolls. There are also more Americans working and in the labor force now than was expected before the Covid-19 pandemic hit. The Congressional Budget Office in January 2020 forecast total employment just below 155 million through the middle of this year. Instead, it surpassed 155 million in January. Source WSJ

US Proposes New Checks on Land Sales to Foreigners Near Military Bases: Buying land near eight U.S. military bases could become more difficult for foreign companies and citizens under a Treasury Department rule proposed by the Biden administration on Friday. The proposed rule would expand the jurisdiction of the Treasury's Committee on Foreign Investment in the United States, which reviews foreign investment and real estate transactions for potential national security impacts, to include land near military installations in California, Texas, North Dakota, South Dakota, Iowa, and Arizona. The Treasury's proposal, published in the U.S. Federal Register, comes after China's Fufeng Group in 2022 bought 370 acres with plans to build a corn milling plant about 12 miles from Grand Forks Air Force Base in North Dakota. The Grand Forks City Council in February voted to terminate its development agreement with Fufeng, preventing it from building the mill. Source Reuters

Walmart Keeps Grocery Prices Steady: A new analysis of Walmart's pricing strategy reveals it has consistently kept grocery prices lower than competitors while generally hiking prices at rates far below U.S. inflation. Data analytics firm Dataweave compared the prices of 589 name-brand products in 34 categories, including coffee, soup, cereals, baking goods, batteries, personal care items and pet food exclusively for Reuters between January 2022 and the end of February 2023. During the period, while U.S. inflation averaged +7.5%, Walmart stores and merchandise rose, on average, +3% in price overall in the 14 months through February 2023, compared to a +7.5% increase for the same products sold at Amazon and 9% at Kroger and Target, said Krishnan Thyagarajan, chief operating officer at Dataweave. Its executives told investors this year they were leveraging metrics and were scrutinizing commodity costs item by item in negotiations with suppliers. Walmart in April claimed that automation in its distribution centers would also help maintain price gaps against competitors. Source Reuters

Academic Study Predicts Which Jobs are Most at Risk from AI: Since the release of ChatGPT, companies have scrambled to understand how generative artificial intelligence will affect jobs. This past week, IBM CEO Arvind Krishna said the company will pause hiring for roles that could be replaced by AI—affecting as much as 30% of back-office jobs over five years. And Chegg CHGG, which provides homework help and online tutoring, saw its stock lose half of its value after warning of slower growth as students turned to ChatGPT. A recent study by a team of professors from Princeton University, the University of Pennsylvania, and New York University analyzed how generative AI relates to 52 human abilities. The researchers then calculated AI “exposure” for occupations. (Exposure doesn’t necessarily mean job loss.) Among high-exposure jobs, a few are obvious—telemarketers, HR specialists, loan officers, and law clerks. More surprising: Eight of the top 10 are humanities professors. For occupations most exposed to AI’s image generation skills, interior designers were on the top of the list, followed by architects, chemical engineers, and art directors. Source Barrons

Remote Work is Turning U.S. Into a "Suburban Nation": For eight years now, as millennials have entered their thirties and forties, also known as “homebuying age,” Bank of America has surveyed over 1,000 members of the generation once a year for its Home Work series. And for 2023’s edition, it finds a “suburban nation” alive and well. Older millennials (age 31–41) are almost three times as likely to move into a house than an apartment, the survey found. In a section called “suburban nation,” BofA reveals that 43% to 45% of millennials—of every age—expect to buy a house in the suburbs. “We expect the ability to WFH to remain an incentive for young families to seek out more remote suburban and rural markets where housing may be more affordable,” wrote the BofA team led by research analyst Elizabeth Suzuki. And remote work is still robust, they added. Millennials are also looking toward the suburbs for wealth-building. A majority (two-thirds) of them believe that they’ll buy a home in the next two years, citing a return on investment as the number one reason for purchasing Source Fortune

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