Fridays are supposed to be good but trade talks are driving volatility and markets continue to trade at support levels. After three days of gains the markets took a hit from trade and tariff issues as President Trump announced more potential tariffs on China. The two countries appear headed to talks but in the meantime we can expect volatility in markets and a willingness by investors to act defensively. At the close on Friday the Dow was off 573 at 23,932. Trading volume moved up and for the year the Dow is now off 3.2%.
The labor report for March came in well below estimates with only 103,000 new jobs versus expectations calling for 185K new jobs. The unemployment rate held steady at 4.1% and labor force participation continues to rise. The good news in the report was the increase in wages which rose 0.3% and is up 2.7% over the past year. Hours worked also increased 2.3% and average hourly earnings came in with a big 5.1% increase. These numbers indicate the Fed will most likely stay on track to raise interest rates 3 more times this year.
Earnings reporting season for the 1st quarter will commence next week and market pundits are expecting a big increase in corporate earnings thanks to a solid economy and the recent tax cuts. The last estimate I saw from Factset was that earnings are expected to raise about 17%. Brian Wesbury, Chief economist and honorary member of the Westport Mafia said that by plugging these numbers into his market valuation model it shows stocks undervalued by about 16% even if the 10 year treasury rate rises to 3%. One sector that gurus are eyeballing for good earnings reports is the energy sector which has seen revenue, earnings, dividends and margins all rise while stock prices are flatter than a pancake. Growth in this sector is happening mostly in renewables and natural gas while coal is off and oil is seeing mixed results.