Markets

Daily Markets: What Does the May Job Numbers Say About the Recovery?

Empty Times Square at dusk, New York City
Credit: Eduardo Munoz - Reuters / stock.adobe.com

Today’s Big Picture

The equity indices in Asia-Pacific closed on a mixed note today with Japan’s Nikkei down 0.4%, China’s Shanghai up 0.2%, Hong Kong’s Hang Seng down 0.1%, and South Korea’s Kospi off 0.2%. By midday trading, the major European equity indices were little changed and U.S. equity futures are mixed but also little changed ahead of the May Employment Report that will be published at 8:30 AM ET.

Following the week’s economic data that included May Manufacturing and Services PMI data, investors will once again be looking for clues as to what the Fed may be thinking from Fed Chair Powell's speech at the Green Swan 2021 Global Virtual Conference. Powell’s comments will be parsed closely alongside the May Employment Report, that is expected to show 720K jobs created during the month, up from April’s disappointing 266K figure. Following the blowout job creation figures in ADP’s May Employment Change Report, another disappointing Employment Report could raise questions about the speed of the U.S. recovery at a time when other data points to supply chain shortages and rising input costs.

We suspect the May Employment report will show positive MoM job growth but runs the risk of being hampered by the American Rescue Plan of 2021 that includes an extra $300 a week in jobless aid and extended pandemic unemployment assistance for the self-employed. We have heard a growing number of companies of all shapes and sizes discuss the inability to find workers leading to production and productivity challenges. With two dozen states ending participation in the federal unemployment benefits program in the coming weeks, and a reported four dropping out this past week, we expect we’ll see incrementally better job gains in the coming months, which could help alleviate some of the reported supply chain shortages. Over the coming weeks, we’ll see if other states opt to exit the program early despite its Sept. 6 expiration.

Data Download

International Economy

Today brought a slew of May Construction PMIs from Europe, which mostly ticked higher MoM as the region slowly loosened its pandemic lockdowns:

  • Eurozone rose to 50.3 from 50.1 the prior month;
  • France climbed to 51.1 from 49.8;
  • Germany slumped to 44.5 from April’s reading of 46.2;
  • Italy moved higher month over month to 58.3 from 57.6;
  • The UK surged to 64.2 from 61.1 in April.

With the openings accelerating, Retail Sales in the Eurozone jumped 23.9% YoY in April, following an upwardly revised 13.1% YoY in March, but missed the expected 25.5% YoY increase for the month.

Domestic Economy

Yesterday’s Employment Change report from ADP came in much stronger than expected with 978k hires in May, well above the downwardly revised 654k for April and more importantly, the expected 650k. This was the highest reading since June 2020. The bulk of new jobs came from leisure & hospitality, which added 440k.

Initial jobless claims saw the fifth consecutive weekly decline, falling another 20k to 385k for the week ended May 29, below 400k for the first time since March 2020, and beating expectations for a decline to 390k. On the other end of the spectrum, continuing jobless claims rose to a 10-week high of 3.77 million for the week ended May 22, well above expectations for 3.615 million.

Unit labor costs rose 1.7% in Q1, well above the expected 0.3% decline following an upwardly revised 14.0% increase in Q4 2020. The increase came from a 7.2% increase in hourly compensation and a 5.4% gain in productivity.

Markit Services PMI came in slightly higher, at 70.4 than the previous estimate of 70.1, indicating the steepest pace of expansion in the service sector since data collection began in October 2009. The pace of job creation weakened as firms reported difficulty filling positions and input cost inflation rose for the seventh consecutive month, reaching the sharpest pace on record.

The ISM Services PMI rose to 64 from 62.7 in April, hitting a new record high for May and beating expectations for 63. There were accelerating increases in business activity, new orders, the backlog of orders, and new export orders. Employment and supplier delivery slowed while price pressures increased.

The biggest data point of the week comes with morning with Non-Farm Payrolls for May and later Factory Orders.

Markets

The stock market ended yesterday on a lower note, although the S&P 500, which finished down 0.4% for the day, reclaimed the bulk of its opening loss following reports the Biden administration is open to implementing a minimum rate of 15% instead of raising the top corporate rate to 28% from 21%. The Dow fell 0.1%, while the Nasdaq slumped 1.0% and the Russell 2000 finished the day down 0.8%.

On the heels of the ADP jobs data, the dollar strengthened, enjoying one of its best days of the past year.

AAII's bearish sentiment has plummeted to 19.8%, now sitting at the lowest level since January 2018.

Stocks to Watch

After Wednesday’s spikes, the usual meme suspects had a tougher day yesterday with Bed Bath & Beyond (BBBY) losing 28.9%, Koss Corp (KOSS) dropping 28.8%, AMC Entertainment (AMC) sliding 23.0%, and GameStop (GME) falling 10.8%. Apparently, Wednesday’s popcorn joy didn’t last.

Yesterday Twitter (TWTR) unveiled Twitter Blue, its first-ever subscription offering, which is going live in Canada and Australia for its initial phase so that the company can better understand what users want. For around $3 a month, it provides enhancements such as the ability to undo a tweet within 30 seconds sending it, a bookmark folder that will help users better organize saved tweets, and a Reader Mode that makes it easier to read threads.

Broadcom (AVGO) reported top and bottom-line results for its April quarter that beast consensus expectations. For the quarter, the company’s wireless business was up 48% YoY and sees that business up 30% YoY in the current quarter. Broadcom issued upside guidance for the current quarter, with revenue of ~$6.75 billion vs. the $6.59 billion consensus. Per the company on its earnings conference call last night, “…the onset of 5G saw the service providers are competing for subscribers, leading to technology upgrades globally in fiber, cable and Wi-Fi connectivity.”

April quarter results posted by CrowdStrike (CRWD) also topped consensus expectations as revenue for the quarter rose 70% YoY to $302.8 million. Annual Recurring Revenue (ARR) increased 74% year-over-year and grew to $1.19 billion as of April 30. The company issued upside guidance for the current quarter that called for EPS of $0.07-0.09, on revenue of $318.3-324.4 million vs. the $311.6 million consensus.

ChargePoint (CHPT) reported mixed March quarter results with EPS that missed consensus expectations despite better than expected revenue for the quarter. The company reported a record number of customer additions in the quarter, which brought its total customer base to more than 5.5K. ChargePoint sees revenue for the current quarter of $46-51 million vs. the $37.2 million consensus and revenue of $195-$205 million for its fiscal 2021 driven in part by expected EV sales of 2.3 million in the US and Europe this year.

April quarter results at lululemon athletica (LULU) topped top and bottom line consensus expectations as company-operated stores net revenue increased 106% to $536.6 million and its direct to consumer net revenue jumped 55% YoY to $545.1 million. On a geographic basis, net revenue for the quarter increased 82% YoY in North America and increased 125% internationally. For its fiscal 2022, lululemon issued upside guidance that calls for EPS of $6.52-6.65 vs. the $6.49 consensus with revenue in the range of $5.825-5.905 billion vs. the $5.7 billion consensus.

Boeing (BA) CEO Dave Calhoun warned of potential "supply constraints" beginning this summer after a surprisingly strong domestic rebound from the COVID-19 downturn pandemic.

Costco Wholesale (COST) reported total May company comparable sales growth of +14.7% that excludes the impacts from changes in gasoline prices and foreign exchange. U.S. adjusted comparable sales growth rose 16.7% YoY for May, while the company’s adjusted e-commerce growth clocked in at 14.7% YoY for the month.

United Microelectronics (UMC) reported May revenue of NT$17.19 billion, up 16.6% YoY.

After today’s market close, there are no companies expected to report their quarterly results. Those looking to get a jump on reports next week should visit Nasdaq’s earnings calendar page.

On the Horizon

  • June 7: Apple (AAPL) WWDC 2021 Keynote
  • June 8: Balance of Trade, JOLTs Report, API Crude Oil Stocks
  • June 9: Wholesale Inventories, Gasoline & Crude Oil Stocks
  • June 10: Inflation, weekly Jobless Claims, Monthly Budget Statement
  • June 11: Michigan Consumer Sentiment
  • June 15: Retail Sales, PPI, NY Empire State Manufacturing, Industrial Production, Business Inventories, NAHB Housing Market Index, Tic Flows, Foreign Bond Investment, Weekly API Crude Oil stock
  • June 16: Building Permits, Housing Starts, Import/Export Prices, Weekly energy stocks, FOMC Economic Projections, and Interest Rate decision
  • June 17: Weekly Jobless Claims, Philadelphia Fed Manufacturing
  • June 21: Chicago Fed National Activity Index
  • June 22: Existing Home Sales, weekly API Crude Oil Stock
  • June 23: Current Account, Markit Manufacturing & Service PMI, New Home Sales, EIA Energy Stock
  • June 24: Durable Goods Orders, Wholesale Inventories, Weekly Jobless Claims, GDP Price Index Q1, Goods Trade Balance, Corporate Profits Q1
  • June 25: Personal Income & Spending, PCE Price Index, Michigan Consumer Sentiment

Thought for the Day

“Maybe all one can do is hope to end up with the right regrets.” ~ Arthur Miller

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

Read Chris's Bio

Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

Read Lenore's Bio

Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

Read Mark's Bio