With Rising Risks of U.S. Economic Slowdown, Investors Sell Stocks

Barry Adams
05 Apr, 2023
New York City

Benchmark indexes on Wall Street extended losses after slower increase in private payrolls and widening trade deficit shifted focus to economic slowdown. 

Private sector payroll growth slowed in March, a second jobs report in as many days, suggesting that the multiple interest rate hikes may be finally having an impact on tight labor market conditions. 

Treasury yields declined amid  the prospect of the Federal Reserve slowing its rate hike policy, however caution prevailed in trading and tech and energy stocks led the decliners. 

Investors also lowered the estimate for the first quarter economic growth after the international trade deficit widened in February. 

The first quarter GDP is now expected to expand at an annual rate of 1.7%, slower than 3.5% estimated less than ten days ago, according to the Atlanta Federal Reserve's GDPNow tracker.   

Investor sentiment has swung from inflation worries to economic slowdown amid weak jobs reports and widening trade deficit.  

The Federal Reserve is attempting to slow down the economic growth that is more sustainable in the long term while trying to cool the red hot inflation. 

But after nine rate hikes over the last thirteen months, inflation is still too high and well above the Fed's target rate of 2% and despite the weakening jobs market signals, labor market conditions are still too tight for policymakers. 

As the Fed struggles to cool inflation, investors are increasingly postponing the Fed's pivot to pause later in the year with the rising prospects of slower earnings growth in the second and third quarters of this year. 

 

U.S. Trade Deficit Expanded In February 

The U.S. international trade deficit expanded in February, the Bureau of Economic Analysis reported Wednesday. 

Exports in February decreased 2.7% from the previous month to $251.2 billion and imports fell 1.5% to $321.7 billion, resulting in a trade deficit rise of 2.7% to $70.5 billion. 

The deficit with China increased $3.2 billion to $25.2 billion in February, driven by $1.4 billion decrease in exports to $13.1 billion and $1.8 billion increase in imports to $38.2 billion.

The surplus with Hong Kong increased $1.0 billion to $2.5 billion in February, driven by $1.0 billion increase in exports to $2.8 billion and less than $0.1 billion increase in exports to $0.3 billion.

 

Private Sector Job Growth Slowed In March 

U.S. private sector job growth slowed in March as consumer demand ebbed and rising interest rates began to bite following nine rate hikes over the last fourteen months. 

Private sector added 145,000 net new jobs following upwardly revised 261,000 in February.  

Service sector added 75,000 jobs and goods producing industries added 70,000 jobs in the month. 

 

U.S. Indexes & Yields 

The S&P 500  index fell 2.68 points to 4,097.92 and the Nasdaq Composite index declined 0.6% to 12,061.24.

The yield on 2-year Treasury notes decreased to 3.71%, 10-year Treasury notes edged lower to 3.31% and 30-year Treasury bonds to 3.58%. 

Crude oil decreased 18 cents to $80.21 a barrel and natural gas futures rose 8 cents to $2.18 a thermal unit. 

 

U.S. Stock Movers 

Johnson & Johnson increased 3.7% to $164.03 after the pharmaceutical company settled a lawsuit alleging the company's talc products caused cancer. 

Johnson & Johnson agreed to pay $8.9 billion over the next 25 years. 

The company's subsidiary LTL Management LLC refiled its voluntary Chapter 11 bankruptcy protection to obtain reorganization plan to pay global claimants. 

 The company agreed to pay a present value of up to $8.9 billion to pay for all current and future claims, a substantial increase from the $2 billion committed to the initial bankruptcy filing in October 2021. 

FedEx Corp increased 2.8% to $235.25 after the parcel delivery company increased its annual dividend by 10% to 44 cents to $5.04 a share in fiscal 2024.  

The delivery company estimated savings of at least $4.0 billion in fiscal year 2025 because of the reorganization plan that will include consolidation of different divisions and refocusing executive compensation packages.  

 

Economic Slowdown Worries European Investors 

Stocks in the eurozone turned lower after investors turned cautious and focused on risks of economic slowdown. 

Investors reassessed global macroeconomic backdrop and worried that the U.S. economy may slowdown faster-than-previously estimated after the release of the latest jobs  data. 

Job openings in March declined to a two-year low of 9.9 million and the ratio of the advertised  jobs to workers fell to 1.7 to 1 from 2.0 to 1.0 in February. 

In addition, the eurozone composite index and service indexes were downwardly revised in the final estimate for March but both indexes are still at 10-month highs.   

Strong  economic activities in Germany and France also sent another signal to policymakers to continue with its aggressive rate hike plan. 

Higher interest rates with slowing global economic backdrop are likely to negatively impact stock market valuations. 

 

Germany's Factor Orders Advanced 3rd Month In a Row 

Factory orders in Germany rose for the third month in a row in February, the Federal Statistics Office reported Wednesday. 

Factory orders rose 4.8% from the previous month but declined 5.7% from a year ago in February but orders rose the most since June 2021. 

January orders were downwardly revised to 0.5% from the preliminary estimate of 0.9%. 

Factory orders rose 1.2% in February after excluding volatile large-scale orders, driven by strong growth in vehicle manufacturing. 

Orders for motor vehicle engines increased 3.7% and in mechanical engineering advanced 2.8%.

Domestic orders rose 5.6% from the previous month, foreign orders increased 4.2%. 

New orders from the euro area increased 8.9%, while orders from the rest of the world increased 1.4%.

 

France's Industrial Production Rebounded 

French industrial production rebounded in February, the statistical office INSEE reported Wednesday. 

Industrial production increased 1.2% on a monthly basis in February from the downwardly revised 1.4% in January. 

Output in mining and energy rebounded  0.3% from the decline of 1.3% in January and manufacturing recovered to 1.3% from the decline of 1.5% in the previous month. 

Construction sector expanded at a faster pace of 1.6% in February from 0.6% in January.  

On an annual basis, industrial production rebounded 1.3% from the decline of 1.7% in the previous month. 

 

Europe Indexes & Yields 

The DAX index decreased 0.5% to 15,520.17, the CAC-40 index declined 0.4% to 7,316.30 and the FTSE 100 index added 0.4% to 7,662.94. 

The yield on 10-year German Bunds increased to 2.28%, French bonds to 2.85%, the UK gilts to 3.50% and Italian bonds to 4.11%. 

The euro inched higher to $1.09, the British pound to $1.24 and the Swiss franc to 90.75 cents. 

Brent crude oil was nearly unchanged at $85.00 a barrel and the Dutch TTF natural gas fell €1.21 to €45.36 per MWh. 

 

Europe Movers 

UBS AG declined 1% and the company's management reiterated that the recent takeover of Credit Suisse is beneficial to the company. 

Sodexo SA soared 12.5% to €101.60 after the company announced its plans to spin off and list its Benefits & Reward Services unit in 2024. 

Lookers Plc 3.8% to 87.90 pence after the UK-based automotive retailer reported higher sales and after-tax  income in its fiscal year 2022. 

Centrica Plc increased 2.1% to  109.74 pence after the utility company launched its stock repurchase program.  

Hermes International SCA increased 1.1% to €1,914.80 and the French luxury products maker traded a new record high on the optimism of earnings in the March quarter.