Stocks will be struggling with a key question in today's trading
action - was Friday's jobs miss a weather-related payback or a
recurrence of a fundamental weakness along the lines what we
encountered around this time in 2011 and 2010? I would say it's all
weather, with the boost from the warm winter months getting
reversed in March, but the overall positive trend line remaining in
place. That said, the market's first reaction to the sub-par
payroll reading will most likely be negative.
In the run-up to the March jobs report, a number of economic
forecasters had started wondering about the extent of temporary
contribution from this year's unusually warm winter. Even Ben
Bernanke found the labor market strength of the last few months
difficult to reconcile with the relatively slow pace of underlying
economic improvement. We will know for sure only after we get the
April jobs numbers in about three week, but weather seems to be the
most plausible explanation for March's unexpected under-200K labor
market reading.
The government's monthly household survey (the unemployment rate
comes out of this report) lists the number of people not at work
because of weather. The non-seasonally adjusted March reading
showed an 82K drop on this count, significantly below the
historical level for this month. The same number for the preceding
three months was above trend compared to history, meaning that the
weather gains of the pre-March months likely got reversed in March.
The persistent downtrend in weekly jobless claims and other labor
market indicators over the last many months would argue against a
fundamental weakness in underlying momentum.
In corporate news, the first quarter earnings season gets underway
unofficially on Tuesday with
Alcoa's
(
AA
) report, with aggregate earnings growth expectations at their
lowest level since the start of earnings recovery in 2009. Barring
unusual negative surprises, I would expect this earnings season to
be largely uneventful. Given the low hurdle rates as a result of
subdued expectations, the focus will be management guidance for the
coming quarter, particularly with how they see the Chinese and
European situation impacting their profitability.
In other news, shares of
AOL
(
AOL
) will be in the spotlight today after the company announced the
sale of over 800 patents to
Microsoft
(
MSFT
) for $1.06 billion in cash.
ALCOA INC (
AA
): Free Stock Analysis Report
AOL INC (
AOL
): Free Stock Analysis Report
MICROSOFT CORP (
MSFT
): Free Stock Analysis Report
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