U.S. Stock Futures Decline as Jobs Report Fuels Economy Concerns

Updated on

U.S. stock futures tumbled as data showing employers added the fewest workers since December 2013 capped a week of reports suggesting economic growth softened in the first quarter.

S&P 500 futures expiring in June lost 1 percent to 2,039.75 at 9:15 a.m. in New York. While exchanges are closed for the Good Friday holiday, futures contracts traded for 45 minutes after the data, giving investors a window to react.

“It’s disappointing because we had some momentum going here and this is a bad number,” said Larry Peruzzi, the Boston-based director of international trading at Cabrera Capital Markets LLC. “I don’t think the Fed is going to change any wording, they’ve been very clear, so the first reaction is to sell the equities. Futures are telling us we may be in for a little bit of a selloff on Monday.”

Treasuries surged, with the 10-year yield dropping 8 basis points to 1.84 percent, as the payrolls report damped the outlook for the timing of interest-rate increases by the Federal Reserve.

The 126,000 increase in March was weaker than the most pessimistic forecast in a Bloomberg survey and followed a 264,000 gain a month earlier that was smaller than initially reported, the Labor Department said. The median forecast in a Bloomberg survey of economists called for a 245,000 advance.

The jobless rate held at 5.5 percent, while average hourly earnings rose 2.1 percent from a year earlier.

Fed Timing

Investors are parsing the data for clues on the timing of the Fed’s first interest-rate increase since 2006. The employment sector has been the brightest spot in the economic recovery. Other economic reports in early 2015 have been the most disappointing in years, with retail sales slumping in January and February, residential construction weakening and manufacturing cooling.

Chair Janet Yellen said March 27 that she expects to raise rates this year, and that subsequent increases will be gradual.

As of Wednesday’s close, Federal funds futures implied liftoff from zero in the final week of November, according to an index maintained by analysts at Morgan Stanley. That’s been pushed back from September, before the policy-setting March meeting.

“People are viewing this as bad news is bad news for stocks, and this is clearly a bad number,” Andrew Brenner, the head of international fixed income for National Alliance Capital Markets, said by phone. “Any way you look at it, the Fed is going to be tightening in their next move. They’re not going to give anymore stimulus, you’ve got competition from Europe, where U.S.-bound equity money is moving, and now the economy is weaker than we thought. Equities are a little fragile.”

Earnings Season

The S&P 500 increased 0.3 percent for the holiday shortened week, with the benchmark gauge trading around a 15-point range framed by its 50-day and 100-day moving averages. The gauge fluctuated between gains and losses amid concern that the six-year bull market may stall, hurting corporate earnings.

Alcoa Inc. next week unofficially kicks off an earnings season that analysts forecast will show the first profit decline since 2009. Profits for S&P 500 companies are expected to decline 5.8 percent in the first quarter as results were buffeted by tumbling oil prices and a stronger dollar.

Investors may face the longest stretch of declines since the financial crisis, with slumps of 4.2 percent and 1 percent over the second and third quarters, according to analyst estimates.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE