Wall Street Brunch: Will Jobs Strength Persist?

The article titled “Wall Street Brunch: Will Jobs Strength Persist?” provides a comprehensive overview of the upcoming February jobs report and its potential impact on the market. It highlights the expectations for a slowdown in payrolls growth and the steady unemployment rate of 3.7%. The article also discusses the implications of the labor market on the Federal Reserve’s decision-making process, with insights from experts on the potential for rate cuts. Additionally, the article touches on earnings activity in the retail sector and provides updates on OPEC+ extending oil production cutbacks and talks between Fisker and Nissan. Overall, the article offers valuable insights into key economic indicators and events that could shape the market in the coming days.

February Jobs Report

The February jobs report is expected to show a slowdown in payrolls growth and a steady unemployment rate of 3.7%. Economists are predicting a rise of 190,000 nonfarm payrolls, compared to the previous month’s increase of over 350,000. The unemployment rate is anticipated to remain at 3.7%, and average hourly earnings are forecasted to rise by 0.2%, a decline from the previous month’s 0.6% rise. Along with the jobs report, other labor-related reports are also expected, including the January JOLTS report, ADP’s measure of private sector employment for February, and the weekly initial claims figures. These reports will provide further insights into the state of the labor market, which will be crucial in shaping expectations for the upcoming March Federal Open Market Committee (FOMC) meeting.

March FOMC Meeting

Expectations are for the Federal Reserve to keep interest rates steady at the March FOMC meeting. The persistently tight labor market has played a significant role in shaping these expectations. Fed funds futures are currently pricing in a 95% chance of the Fed maintaining rates, marking a significant change from late December when odds were at 90% for a rate cut. Apollo Management Chief Economist, Torsten Slok, believes that the Fed won’t cut rates until 2025. He argues that the Fed’s hawkish pivot since December has provided strong tailwinds to growth, and the labor market remains tight with low jobless claims and wage inflation between 4-5%. Trend inflation measures are also showing an upward trajectory. However, Pantheon Macro economist Ian Shepherdson suggests that turning points can happen quickly, and he expects the labor market and inflation data by the May meeting to signal the need for easing.

Earnings Activity

Target is set to report its earnings, and the market has already factored in low revenue growth for the company. Seeking Alpha analyst Max Greve believes that poor Q4 revenue is already baked into the stock unless it falls below a double-digit decline. Despite short-term risks, he sees long-term potential for Target. Other retailers, including Foot Locker, Abercrombie & Fitch, Victoria’s Secret, Kroger, Costco, and Gap, will also be reporting their earnings this week. These reports will be closely watched for insights into the health of the retail sector and consumer spending.

OPEC+ Extends Oil Production Cutbacks

In an effort to support prices and ward off a surplus, OPEC+ has decided to extend oil production cutbacks through the first half of the year. The production cuts, totaling 2 million barrels a day, will remain in effect until the end of June. Saudi Arabia is responsible for half of these cuts. This decision comes as Brent crude has traded at around $80 a barrel due to adequate supplies outweighing disruptions in Middle East shipping caused by regional conflicts. The impact of these cutbacks on oil prices will be monitored closely as they can have significant implications for the global energy market.

Fisker’s Talks with Nissan

Electric vehicle (EV) maker Fisker is reportedly in talks with Nissan as it tries to save itself from insolvency. Nissan may invest up to $400 million in Fisker’s truck platform and potentially produce Fisker’s planned Alaska pickup at one of its US assembly plants. The deal is currently going through due diligence, and if successful, it could provide a lifeline for Fisker, which recently expressed doubts about its ability to continue as a going concern. This potential investment by Nissan highlights the interest and support within the EV industry as companies seek to establish a strong presence in the market.

Tesla Lawsuit Update

Three law firms are seeking $6 billion in Tesla stock as their fee for successfully nullifying Elon Musk’s $55 billion pay package. The Delaware Chancery Court Chief Judge recently voided the 2018 performance-based stock option grant due to a shareholder lawsuit that claimed it was unduly approved. The shareholder lawsuit was filed by former heavy metal drummer Richard Tornetta on behalf of Tesla investors. The outcome of this lawsuit and the potential payout of Tesla stock will have implications for Elon Musk and could impact the company’s financials.

Activist Investor Calls for Norfolk Southern CEO Replacement

Following a recent train derailment incident involving Norfolk Southern, activist investor Ancora Holdings has called for the immediate termination of CEO Alan Shaw and a reconstitution of the board. The train derailment in Pennsylvania has raised concerns about safety commitments and has led Ancora Holdings to demand new leadership with a track record of delivering on safety. Norfolk Southern has yet to respond to these demands, but the incident and subsequent call for CEO replacement will be closely monitored by investors and industry observers.

Morgan Stanley’s Outlook

Morgan Stanley provides its outlook on the market cycle, predicting a boom-bust environment with a “hotter but shorter” cycle. The bank anticipates a downside to earnings per share (EPS) followed by a recovery in the second half of the year. Strategist Michael Wilson estimates a base price target of 4,500 for the S&P 500, representing a 12% decline, with a next-twelve-months P/E target of 17.7x. EPS estimates for 2024 are projected at $229, with 7% growth. Morgan Stanley recommends overweighting sectors such as healthcare, consumer staples, and utilities. They are neutral on communication services, energy, financial services, industrials, materials, technology, and real estate, and underweight broad consumer cyclicals.

Wall Street Research Corner

In this section, a summary of Morgan Stanley’s analysis is provided. The bank sees the market operating in a boom-bust environment, characterized by a shorter cycle. Strategist Michael Wilson suggests that a “proper bust” will be followed by another earnings boom. He estimates a base price target of 4,500 for the S&P 500, with a next-twelve-months P/E target of 17.7x. EPS estimates for 2024 are projected at $229, with 7% growth. Morgan Stanley recommends overweighting sectors such as healthcare, consumer staples, and utilities. They are neutral on communication services, energy, financial services, industrials, materials, technology, and real estate, while underweighting broad consumer cyclicals. This analysis provides valuable insights for investors as they navigate the current market conditions.

In conclusion, the February jobs report is expected to show a slowdown in payrolls growth, the March FOMC meeting is predicted to maintain interest rates steady, and earnings activity in the retail sector will be closely watched. Additionally, news about OPEC+ extending oil production cutbacks, Fisker’s talks with Nissan, the ongoing Tesla lawsuit, calls for the replacement of Norfolk Southern’s CEO, and Morgan Stanley’s outlook on the market provide further highlights in the financial landscape. As investors and market participants, staying informed and aware of these developments is essential for making informed decisions.