Individual investor bears jump to a 5-week high -AAII

INDIVIDUAL INVESTOR BEARS JUMP TO A 5-WEEK HIGH -AAII (1215 EDT/1615 GMT)

Pessimism among individual investors hit a five-week high, while staying above average for the eleventh-straight week, in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, both optimism and neutral sentiment retreated.

AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, jumped 6.4 percentage points to 44.9%. Bearish sentiment is still above its historical average of 31.0% for the 71st time out of the past 76 weeks.

Bullish sentiment, or expectations that stock prices will rise over the next six months, ticked down 0.1 percentage points to 24.1%. Optimism continues to be at an uncommonly low level.

"Bullish sentiment is unusually low for the 50th time out of the past 70 weeks," the survey said.

Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, fell 6.3 percentage points to 31.0%. This ended neutral sentiment's five-week streak of above-average levels, and it is below average for just the second time in 18 weeks.

AAII noted that this week's responses were recorded prior to the FOMC's 25 bps interest rate increase.

The bull-bear spread widened to -20.8 percentage points from -14.4 percentage points last week. The spread remains at an "unusually low level for the eighth time out of the last 11 weeks":

Meanwhile, AAII asked its members which asset class they think will deliver the highest return over the next six months. Here are their responses:

Domestic stocks: 39.6%

Bonds: 13.0%

Gold: 9.0%

Money market funds: 27.1%

No opinion/Not sure: 10.7%

(Terence Gabriel)

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LABOR MARKET TO FED: WHAT COOL-DOWN? A JOBS REPORT DEEP DIVE (1108 EDT/1508 GMT)

The Labor Department dropped a hot potato disguised as the April employment report on Friday, contradicting recent signs of potential cooling in the job market.

U.S. employers added 253,000 workers to their payrolls last month (USNFAR=ECI), a significant 40.6% surprise to the upside, unexpectedly driving the unemployment rate (USUNR=ECI) down 0.1 percentage point to 3.4%.

"Bottom line, this is a strong report and shows that the labor market is resilient," says Peter Cardillo, chief market economist at Spartan Capital Securities. "It bails out the Fed for raising another quarter point."

"The weakening of the job market seems to have stalled."

However, this follows a sharp downward revision to the March number - to 165,000 from 236,000 - somewhat neutralizing the hot headline number. With that revision, March was the first reading since December 2020 when payrolls fell short of the 200,000 level.

The 230,000 private sector hires makes Wednesday's blowout ADP number - 296,000 - seem a tad less grandiose.

Digging deeper, services continue to be the beneficiary of solid consumer demand. The sector was responsible for 85.7% of the total at 197,000 job adds, while goods producers, construction and manufacturing contributed a combined 25.7% to the topline.

These days, wage inflation has become the employment report's star attraction, and April was no exception.

Average hourly earnings grew at 0.5% last month, hotter than the 0.3% expected. Year-over-year, pay inched up by 0.1 of a percentage point to 4.4%, moving in exactly the wrong direction to the Fed's liking.

"While far from the only driver of the inflationary surge of the past few years, wage growth has played a role in sustaining it," says Jim Baird, chief investment officer at Plante Moran Financial Advisors.

Taken together with other indicators, it's clear that inflation is gradually cooling down, but numbers like this one reiterate the likelihood that the road down to the average annual 2% Fed target will be a bumpy ride.

The troublesome labor market participation rate obstinately refused to budge from 62.6%, well below the pre-pandemic level.

When the participation rate grows, often so does the unemployment rate, as a worker has to be in the labor market game - not sitting in the stands - to be counted among the jobless, temporarily benched on the sidelines.

But behind that number there's some good news, as outpointed by Jeffrey Roach, chief economist at LPL Financial.

"The employment-population ratio for prime age workers was above pre-pandemic levels and the highest since mid 2001," Roach writes. "This age group is a key contributor to productivity growth in this country."

Those scanning the horizon for clouds might take a look at joblessness broken down by duration, which shows a decrease in short-termers' share of the total and increases in the medium- and long-term slices of the pie, hinting that it might be taking unemployed workers longer to find a new gig.

Even so, the distribution by duration has returned to its pre-COVID equanimity:

A sunny spot in the April report can be found in the unemployment breakdown by race and ethnicity.

While White unemployment inched down 10 basis points to 3.1%, Black and Hispanic joblessness both shed 20 basis points, to 4.7% and 4.4%, respectively.

This brings the White/Black jobless gap down to 1.6 percentage points, the narrowest reading since 1971.

Taken together, this hot batch of data, while not particularly increasing the odds of yet another rate hike from Powell & Co, market participants shouldn't hold their breath for a pivot.

"While normally positive news in the jobs market would be great for the markets, given that we are in the middle of an inflationary regime, it only increases the likelihood that the Fed will need to keep rates higher for longer," says Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

(Stephen Culp)

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WALL STREET A BIT GIDDY AFTER APRIL JOBS REPORT (1005 ET/1405 GMT)

Wall Street is in rally mood on Friday after a hot labor market report for April suggested the Federal Reserve may be able to deliver a soft landing as it keeps interest rates steady to cool stubbornly high inflation.

Ten of the 11 S&P 500 sectors are higher, led by energy SPN, while communication services S5TELS is the sole decliner.

Banking shares (.SPXBK), (.KRX) are among outperformers, with semiconductors SOX, transports DJT and small caps RUT also higher.

U.S. employers boosted hiring in April while raising wages for workers, pointing to sustained labor market strength.

Nonfarm payrolls increased by 253,000 jobs, while the Labor Department revised March data lower to show 165,000 jobs added instead of 236,000 as previously reported. Economists polled by Reuters had forecast payrolls rising by 180,000 in April.

Gina Bolvin, president of Bolvin Wealth management Group in Boston, said it looks like good news may be good news.

"In the past we've seen a hot jobs report bring the market lower but now the market is holding on to gains, thinking the glass is half full, a soft landing is possible and a recession is not as imminent."

The market's interpretation of where Fed policy will be at the end of the year does not square with the numbers that we're getting or what the Fed has been telling us, said Anthony Saglimbene, chief market strategist at Ameriprise Financial.

"There could be some volatility later this year in the stock market. The reality is the Fed is likely going to keep rates higher for longer," he said. "The market just doesn't see that right now or just doesn't want to admit that might be the case later this year."

Below is a snapshot of early market prices:

(Herbert Lash)

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U.S. STOCK FUTURES HOLD GAINS AFTER HOT APRIL JOBS DATA (0900 EDT/1300 GMT)

U.S. equity index futures are holding their gains in the wake of the release of the latest data on U.S. employment.

The April non-farm payroll headline jobs number came in at 253k, which was well above the 180k estimate. The unemployment rate was 3.4% vs a 3.6% estimate. Wage data, on a month-over-month and year-over-year basis, was hotter than expected:

Of note, however, the March headline jobs number was revised sharply lower from 236k to 165k.

According to the CME's FedWatch Tool (FEDWTACH), the probability that the Fed sits on its hands and leaves rates unchanged at its June meeting is now around 97% from 99% just prior to the data coming out. The chance of a 25 point rate hike is now 3% from 0% just before the numbers were released.

E-mini S&P 500 futures ES1! are higher, gaining around 0.7%. In the wake of Apple's AAPL upbeat results, the futures were up around 0.7% just before the numbers came out.

All S&P 500 sector SPDR ETFs are higher in premarket trade, with energy XLE, up around 2%, showing the biggest gain.

The SPDR S&P regional banking ETF KRE is up around 4%.

Regarding the jobs data, Anthony Saglimbene, chief market strategist at Ameriprise Financial, said: “It's definitely telling you that the job market is still hot. It’s a little bit concerning that the inflation number, the average hourly wages, that ticked up."

He added, "to me it communicates two things. The Fed still has some work to do and the job market’s hot. So the 25 basis points that they raised this week was justified. It also tells me that maybe the Fed is right in terms of they can cool some of the inflation pressures in other areas of the economy, knowing that it's not going to have a real big detrimental impact on the labor force.”

Additionally, Saglimbene said “The market is excited that maybe the Fed is done raising interest rates and that they're actually going to cut later this year, while at the same time the Fed is telling you that that's not really what their position is. And we have these job numbers that are showing that there's still some work to do."

Here is a premarket snapshot just shortly before 0900 EDT:

(Terence Gabriel, Herbert Lash)

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