The March jobs report came out spectacularly strong on Friday, with the U.S. economy adding a stunning 303,000 jobs in the third month of the year. That’s even despite the highest interest rates in two decades. The jobs report also brought to surface the lingering tension between Wall Street’s desire to avoid a recession and its hopes that the Federal Reserve will cut interest rates.
So, which is it: Recession or rate cut?
Well, if you gauge the desires of many Wall Street analysts, both. Indeed, heading into the March jobs report, many on the Street were actually hoping for mild softening in the labor market — nothing too drastic, but enough to pressure the Fed to succumb to recession concerns and finally cut rates.
“We’re hopeful for [a] kind of Goldilocks story with the jobs report where we get some continued softening, but not too much,” U.S. Bank Wealth Management Senior Vice President Lisa Erickson told Fox Business ahead of the report.
This dichotomy has ruled Wall Street in 2024. Analysts have hankered for just enough economic deterioration to activate the central bank. But, obviously, not enough contraction to suggest the arrival of an actual recession.
It’s a fine line. One that hints at the (perhaps backward) order of priorities many on Wall Street hold regarding monetary policy. The fact is, Wall Street is so eager for rates to come down — a clear benefit to corporate earnings — that it’s willing to let the wider economy take a hit.
“While the economy’s growth path appears resilient right now, this does not mean that there aren’t many people and corporations being negatively impacted by the Fed’s restrictive rates,” noted BlackRock Chief Investment Officer Rick Rieder.
March Jobs Report Draws Mixed Feelings From Wall Street
The stock market has typically been a decent — albeit inconsistent — proxy for traders’ feelings on economic data.
In past months, after the release of unusually strong jobs data or a surprisingly hot inflation report, stocks tumbled as analysts grappled with the notion that the Fed has been granted more freedom to delay lowering rates.
On Friday, however — in the midst a particularly weak series of trading sessions — stocks soared following the release of red-hot jobs data. Indeed, the S&P 500 closed in the green by 1.11% today.
Just a day prior, stocks slipped in the final hours of trading after Neel Kashkari, President of the Minneapolis Fed, suggested that the central bank may not cut rates at all this year if inflation doesn’t continue easing.
It’s confusing. Wall Street simultaneously hopes for a strong, resilient U.S. economy as well as for the Fed to cut interest rates. Yet, despite being somewhat mutually exclusive currently, the two are inescapably dependent on each other.
How Hot Was the Jobs Data?
At 303,000 added payrolls, the U.S. economy gained 100,000 more jobs than expected in March. This put the unemployment rate at just 3.8%. Average hourly earnings also rose 4.1% annually in March, outpacing inflation and ensuring all-important consumer spending will continue to hold the line, at least for the foreseeable future.
“The data leaves us borderline speechless,” said Jefferies U.S. Economist Thomas Simons. “We don’t want to overreact to one single data release, especially one that has the reliability issues and revision risk that this one does, but this calls our bear case for the economy into question.”
Overall, the report came in shockingly strong. But if you’re a Wall Street analyst, that may not necessarily be what you had been hoping for.
“Still, the shorter-term obsession with the timing of a likely Fed rate cutting cycle is overshadowing much more important longer-term dynamics in the economy and employment,” Rieder wrote.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
