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Pre-Markets Crawl Back After Hump-Day Selloff

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Thursday, March 23rd, 2023

Pre-market futures are up this morning after a purge Wednesday afternoon which saw the Fed not only increase interest rates another 25 basis points (bps), but outlined a scenario where no rate cuts are expected throughout the end of the year. Major indices saw -1.6% losses by yesterday’s close, and right now the Dow is +58 points, the S&P 500 +20 and the Nasdaq is +129 points at this hour.

Initial Jobless Claims ratcheted down further below the psychological 200K per week to 191K, 7000 claims fewer than expected and 1000 fewer than the previous week’s unrevised 192K. In fact, aside from an outlier first week of March which reported new jobless claims of 212K, we haven’t seen figures at 200K or higher since the very first weeks of the year. This, of course, is consistent with the robust labor market we continue to see in other metrics.

Continuing Claims, reported a week in arrears from initial claims, ticked slightly higher: to 1.694 million from an unrevised 1.68 million the previous week. Again, looking at a psychologically pleasing threshold of 1.7 million, we’ve only been over this once (in late February) over the past 12-week cycle. In fact, sub-2 million claims per week is a sign of a healthy workforce; we’re still well below this.

I say “psychologically pleasing” from a full employment perspective, not a “fighting inflation” perspective. Because, as Fed Chair Jay Powell points out virtually every time he appears for a press conference (like he did yesterday), a tight labor market promotes further inflation, through wage gains. Really, though — and Powell mentioned this yesterday, too — the labor force has many more jobs to fill than we do workers to fill them. So consider this an ongoing problem.

The current U.S. Account Deficit in Q4 was slightly less than what analysts were expecting: -$206 billion, from a -$214 billion level expected, and much better than the downwardly revised -$219 billion the previous quarter. It’s also a notable improvement from the year-ago record account deficit of -$282 billion, so at least we’re moving the right direction. That said, year-over-year deficits amount to 3.7% of current-dollar GDP, a tick worse than the previous 3.6%.

After yesterday’s market bath, we’re down over the past five trading days in all major indices but the Nasdaq. Over the past month, the Nasdaq is still +5% while its index brethren is all down, from -0.75% (S&P) to -8.33% (Russell 2000). Year-to-date, our Tale of Two Markets really starts to take shape: the Nasdaq remains +17% while the Dow is -3%. This morning, at least, we see some parity: +0.1% on the Dow to +1.0% on the Nasdaq, with the bias still on the tech-heavy index.

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