Stock market today: Stocks rebound as Powell reinforces Fed caution

Nordstrom (JWN) has been taking a beating all morning long, down 15% after another ugly quarter.

Most analysts on the Street have remained cautious after the results — deservedly so.

Sales at the core Nordstrom brand were weak again. Rack sales were up double-digits. Margins under pressure. Conference call commentary wasn’t inspiring.

JP Morgan analyst Matt Boss perfectly sums up the vibe on the stock:

“We are Underweight JWN. With the current backdrop potentially “as good as it gets” for both JWN’s $100K+ core household income customer (w/ MSD-HSD% personal savings rate, debt service ratio at 40-year lows, and US household wealth creation of +$12 trillion in 2020) and on the pricing/promotional front (lean channel inventory/ industry AUR expansion) – JWN’s absolute and relative performance remain underwhelming with 2023 revenue levels below 2019 with EBIT margins below 2019.”

On Wednesday, ADP Research Institute’s monthly pay insights report showed wage gains for people that change jobs increased in February for the first time since November 2022.

ADP chief economist Nela Richardson told Yahoo Finance this is noteworthy because wage gains for job changers are “most sensitive to current labor market activity.” Richardson added that the number shows the massive wage growth seen during the pandemic is “not going to bed quietly.”

“[Wages] are actually showing that tightness in terms of the labor market is still very prevalent,” Richardson said.

There were, however, other signs on Wednesday that could indicate slowing wage growth is on the horizon, which many believe would be a welcome sign for the fight against inflation. SoFi’s head of investment strategy Liz Young noted on X that quits tend to lead wage growth by about nine months. So the decrease in the quits rate seen in January’s JOLTs report is pointing to “further wage deceleration” in the pipeline.

Another update on wages will come with the February jobs report, which is slated for release at 8:30 a.m. ET on Friday. Economists surveyed by Bloomberg expect wages grew at 4.3% during February down from 4.5% in January.

Job openings hit their lowest level since March 2021 in January, showing further signs of rebalancing in the labor market.

There were 8.86 million jobs open at the end of January, a slight decrease from the 8.89 million job openings in December, according to new data from the Bureau of Labor Statistics released Wednesday. Economists surveyed by Bloomberg had expected there were 8.85 million openings in January.

The report also showed that the quits rate, which reflects confidence among workers, slipped to 2.1%. That’s down from 2.2% in the previous month and is its lowest level since August 2020. Additionally, the JOLTS report showed that 5.7 million hires were made in the month, a slight decrease from the 5.8 million seen in December.

The hiring rate sat at 3.6% in January.

US stocks opened higher on Wednesday, with techs vaulting back from a steep sell-off as investors digested Federal Reserve Chair Jerome Powell’s stance that interest rate cuts are still likely this year.

The Nasdaq Composite (^IXIC) jumped about 1% after techs led a sharp slide in stocks more broadly on Tuesday. The S&P 500 (^GSPC) added more than 0.6%, while the Dow Jones Industrial Average (^DJI) popped 0.5%, as both indexes came off losses of more than 1%.

Prepared testimony published Wednesday morning revealed that Powell plans to tell lawmakers that rate cuts are likely to be warranted “at some point” in 2024. Investors will look for more clarity on this issue as Powell fields questions from lawmakers over the next two days.

“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell will testify to the House Financial Services Committee.

Just to level set with you in case you haven’t gotten there already:

The year may end with no interest rate cuts as opposed to the six some on the Street expected in early January. It is interesting to see markets still rocking as expectations on rates have come in. Good to see investors embrace good economic data!

It’s likely you will hear the Fed’s Jerome Powell continue the drumbeat of recent Fedspeak on rates in his testimony to lawmakers today.

For Goldman Sachs economists, 2024 is now shaping up to be the year of rate cuts … everywhere else.

“The major DM [developed market] central banks will cut for at least three consecutive meetings starting in June, continue to cut consecutively in economies like the Euro Area and UK where growth remains below trend, but slow down in economies like the US where activity remains resilient,” said Goldman’s chief economist Jan Hatzius.

And that raises the question: is it time to rotate into European stocks from more expensive US equities?

Goldman sees a faster pace of rate cuts in markets outside the US. (Goldman Sachs)