Recession Fears Are Dissipating

In his podcast addressing the markets today, Louis Navellier offered the following commentary.

If you wish to listen to this commentary, please click here.

Strong Economy

The Labor Department on Thursday reported that weekly unemployment claims rose to 242,000 in the latest week, up from a revised 229,000 in the previous week. Continuing unemployment claims declined to 1.805 million, down from a revised 1.843 million in the previous week.

This drop in continuing claims was good news, since in the previous week, it was at the highest level in 16 months.

Then on Friday, the Labor Department reported that 253,000 payroll jobs were added in April, which was substantially higher than economists’ consensus estimate of 185,000.

However, March’s payroll was revised down to 165,000 (from 236,000 previously reported), and February payroll was revised down to 248,000 (from 326,000 previously reported), so combined, payrolls were revised lower by a whopping 149,000 jobs in the past two months.

After factoring in all these revisions, the unemployment rate declined to 3.4% in April, down from 3.6% in March. Wage inflation actually picked up at the fastest pace in almost a year and rose by 0.5% or 16 cents to $33.36 per hour in April.

Overall, due to a lower unemployment rate and rising wages, the payroll report was indicative of a stronger economy.

Dissipating Recession Fears

The Atlanta Fed is now estimating second-quarter GDP growth at a 2.7% annual pace. On Tuesday, Wall Street was expecting slowing economic growth, which caused crude oil prices to fall dramatically.

However, on Friday in the wake of the April payroll report, Wall Street is now expecting robust economic growth, so crude oil prices are resurging and erasing the price declines earlier in the week.

I should add that Apple’s (NASDAQ:AAPL) better-than-expected first-quarter results due to sales in India are also helping to boost the global economic outlook. As a result, any recession fears have dissipated.

FOMC’s Weak Statement

The Federal Open Market Committee (FOMC) statement on Wednesday, in my opinion, was a “weak” statement, since it neglected to say that the Fed was done raising key interest rates, even though its previous rate hike language was removed.

Specifically, the phrase “some additional policy firming may be appropriate” was removed. Furthermore, since the Fed’s key interest rate remains above Treasury yields, the Fed knows the banking system will be super restrictive and curtail credit.

Interestingly, Fed Chairman Jerome Powell’s press conference was also full of weak comments, since he would not commit to curtailing future key interest rates. As usual, Powell is deferring to the next FOMC meeting, which will be in June.

Powell’s comments like “sufficiently restrictive” are dovish and imply that the Fed is done raising key interest rates. The Fed Chairman’s other comments, like waiting for the “data” are also dovish.

Fortunately, Powell said that the Fed is likely “at the level” that should help inflation migrate to the 2% level. Overall, Fed Chairman Powell does not inspire confidence when he talks, since he is very matter-of-fact and always waiting to see the economic tea leaves unfold.

However, in my opinion, the Fed is done raising key interest rates and I did appreciate that Powell said “sufficiently restrictive.” As a result, the uncertainty surrounding Fed policy is expected to diminish.

Coffee Beans: Middle-Class Squeeze

America’s middle class has been shrinking for the past 50 years. From 1970 to 2021, the share of U.S. aggregate income earned by the middle class shrunk massively, from formerly 62 percent to just 42 percent.

Both the low-income and the high-income classes have been growing in America – squeezing the middle class from both sides. Source: Statista. See the full story here.

Source valuewalk