Forget the Fed stalking for a hot second. The dreary March employment report just confirmed something more important to the near-term lives of investors.
First-quarter earnings season will be damn brutal.
March nonfarm payrolls badly missed consensus, coming in at a gain of 126,000 vs. the 245,000 consensus. Why the consensus was so high is a mystery seeing as the ADP fell short of the mark and weather was expected to be a major negative factor.
Here is why there's cause for concern:
- The miss just felt worse than whispers on the Street that were bracing for around 190,000. That, in turn, has jacked up concern the economy is fundamentally weakening in large part to the strong dollar. I think the jobs numbers also reflects a hesitance on the part of consumers to spend. After all, the U.S. savings rate has hit 5.8%. We could see the rather resilient trade in consumer discretionary names, particularly retailers, unwind off the jobs report. I'm hearing restaurants have had a soft first quarter.
- Hours worked fell, suggesting slower rates of incoming new orders on the part of companies. I believe that notion could be gleaned from job declines in the trade and durable goods sectors in March (according to the report).
- Jobs declined in tech areas of the report, confirming the sour earnings-related news from a SanDisk (SNDK), and hinting at weak first-quarter earnings from multinational tech names such as IBM (IBM) and Intel (INTC).
- Mining jobs continue to be under pressure. It's reasonable to expect poor first-quarter results from Caterpillar (CAT) and Joy Global (JOY), even General Electric (GE). And if their earnings are weak, best believe guidance for the second quarter will be below the already-lowered consensus. Talk about a double whammy of negativity. The sluggishness could even extend to industrial tool companies like Snap-On (SNA) and Stanley Black & Decker (SWK), both of which also sell tools to auto-related fields (auto sales have slowed, too).
The realities described here come as investors have had to digest a somewhat resilient tone from the Fed on the timing of rate increases. If the Fed is truly data dependent, then it should reconsider its rate-hike plan for this year based on the March employment report.
At least for right now, the market believes the Fed has committed to a gradual rise in rates soon. Not sure I would want to fight the market's view there, as well as more evidence regarding the challenging first-quarter earnings season.