Market Update

Stocks lower, jobs report misses expectations. U.S. equities are trading in the red this morning, and a disappointing headline read on nonfarm payrolls is sustaining the cautious mood on Wall Street. Overseas, European indexes are also lower, with the Euro Stoxx 50(European blue chips) off more than 1% in afternoon trading. Asian markets closed lower overnight amid cautious trading ahead of U.S. payrolls data and as commodities prices fell; China’s Shanghai Compositedropped 2.8% while Japan’s Nikkei Index posted modest losses in its first trading session since Monday. WTI crude oil moved back below $44/barrel this morning, COMEX gold is up sharply, and Treasury yields continue to slide.

April jobs report is mixed at best and lowers the already low odds of a June rate hike. The economy added 160,000 jobs in April, well below the consensus estimate of +200,000. Prior months’ job counts were revised lower by 19,000. While the unemployment rate, at 4.9%, met consensus, the drop in the rate from 5.0% in March to 4.9% in April was quirky. The strongest component of the report was the acceleration in wages to +2.5% year over year in April from +2.4% in March. Temporary help jobs–a key leading indicator of future job growth–rose just 9,000 and have downshifted in recent months, signaling a slowdown in hiring later this year from the recent 200,000+ per month.

China data are key next week. China will begin releasing its April data over the weekend, and by the end of next week will have reported almost all of its key reports for April (retail sales, Consumer Price Index [CPI], exports,money supply, and new loan growth). In the U.S., April retail sales, the March Job Openings and Labor Turnover Survey (JOLTS) data, along with a half dozen or so Federal Reserve Bank (Fed) speakers are on deck. The Bank of England meeting next week is the key central bank meeting.

Market outlook (as of 5/2/16). We continue to expect stocks to produce mid-single-digit returns in 2016, based on an expected second half 2016 rebound in earnings, a modest pickup in global growth, stable oil prices, and resilient corporate profit margins. We expect elevated volatility amid ongoing global macroeconomic uncertainty and an aging business cycle. We expect flat to marginally positive bond market performance (based on the Barclays Aggregate Bond Index) in 2016 as interest rates move gradually higher, valuations are expensive, and the Fed potentially hikes interest rates once or possibly twice this year.

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