Dow, Nasdaq, S&P 500 weekly preview: Markets brace for strong employment data

The S&P 500 last week saw an increase of 0.4% to close at a fresh record high of 5,254.35. Meanwhile, the Dow Jones Industrial Average gained 0.8%, ending the week at 39,807.37. Both indices achieved record closes, with the S&P 500 reaching a new all-time high within the trading session. The Nasdaq Composite, however, experienced a slight decline of 0.3%, closing at 16,379.46.

For the entire first quarter, the S&P 500 saw a 10.2% increase, its highest first-quarter rise since a 13.1% rise in 2019. The Dow recorded a 5.6% gain for the period, its best start since a 7.4% increase in 2021. The Nasdaq concluded the quarter up by 9.1%.

Nvidia (NASDAQ:NVDA), last year's top performer, remained the key catalyst behind this quarter's and month's market gains, fueled by the unrelenting demand for artificial intelligence technology. The company's stock surged 82.5% over the quarter and rose 14.2% in March alone.

When it comes to economic indicators, the number of initial unemployment insurance claims for the week ending March 16 was reported at 210,000. This figure is slightly below the 211,000 forecast by economists polled by Dow Jones.

“As we head into next week, the data gets a lot heavier, so we’ll have more catalysts to drive things around, but I would say on balance, this has been the end to a really good month and a really good quarter and it’s nice to finish up and head into the weekend on a super upbeat tone,” noted Art Hogan, chief market strategist at B. Riley Wealth.

The US government also announced an upward revision of the U.S. economic growth rate for the October through December period, now stating it grew at an annual pace of 3.4%, up from the initial estimate of 3.2%.

“Despite the positive news on 4Q growth, we continue to believe that momentum is downshifting early this year,” JPMorgan economists said, commenting on the revised real gross domestic product (GDP) data.

“Consumer spending appears to have softened in recent months and we also see signs of weakening in figures related to trade and inventories,” they added.

The upcoming week also brings a lineup of key economic updates, with a spotlight on Jerome Powell's speech about the economic outlook slated for April 3.

Markets are also awaiting the release of the March ISM Manufacturing and Services PMI data, alongside the eagerly awaited average hourly earnings and nonfarm payroll reports set to drop on Friday.

Markets brace for March employment data

March hasn't brought much news on inflation, but the information available suggested a softer-than-expected trend.

Specifically, the core personal consumption expenditures (PCE) price index's quarterly change for the fourth quarter was slightly revised downwards. Moreover, the University of Michigan's consumer survey adjusted its March inflation expectations lower compared to initial reports for the month.

More importantly, PCE data for February matched consensus forecasts, signaling a steady course for the Federal Reserve before it contemplates any interest rate reductions.

The core PCE index, a key indicator the Fed closely monitors, rose by 2.8% on a year-over-year basis and saw a 0.3% uptick from the previous month, aligning with expectations.

This week, the March employment data could be one of the most important economic developments for the markets, with both the Fed and economists bracing for a strong headline print, despite some slowdown in job growth relative to the past few months.

Economists at JPMorgan forecast that nonfarm payrolls grew by 200,000 last month, compared to 275,000 in February.

“We also believe that average hourly earnings rose 0.3% in March while the unemployment rate held at 3.9%,” they wrote.

What analysts are saying about US stocks

Vital Knowledge: “The [AI] technology is real, as is the enormous amount of money being spent on it. However, the most prominent AI tools at the moment are consumer-facing ones that can’t be described as anything more than proof-of-concept gimmicks, not the type of ROI-enhancing products that enterprises will deploy throughout their organizations. This discrepancy between massive infrastructure investment and utility could lead to an enormous correction, much as occurred the late-‘90s/early-‘00s with the internet.”

Stock Trader’s Almanac: “This is the beginning of our shift to a more cautious “Worst Months” stance. We remain bullish for 2024, but we suspect the bulk of the next leg up will transpire in the latter part of the year after some consolidation and/or weakness during Q2-Q3.”

Oppenheimer: “Our OPCO Bullish Composite, an aggregate of four popular investor surveys, reached 91% last week marking the most optimism in this contra-indicator since January 2018. Such a high reading has historically been followed by below-average returns and thus prompts the question whether market conditions have become as good as they get?

Overall, market consolidation would be reasonable but is not necessary. With the market overbought in a confirmed bull cycle, we expect bottom-up selection to outperform top-down timing.”

Jefferies: “We believe AI spend will spread to other infrastructure providers and to app vendors that enable enterprises to take advantage of Gen AI. Our AI KIS basket represents the companies we see capturing the most of this transformational opportunity. We advocate for investors to position themselves before enterprise adoption ramps in late ’24 into ‘25, providing a better line of sight to rev uplift.”

Citi: “We believe it is time to buy into the next leg of the Artificial Intelligence trade which includes broadening beyond the US and across the value chain. Aggressive price action in certain pockets suggests implicit growth expectations have run well ahead of fundamental expectations. This means investors should be discerning within the theme, especially for core
holdings. For Growth investors, we suggest an Artificial Intelligence-at-a- reasonable-price approach. For Value managers, consider lower-multiple names where margins should expand.”