Traders Baffled as Focus Shifts From Tariffs to Jobs -- and Back

(Bloomberg) -- Sometimes in the stock market a month can seem like a lifetime ago. This is one of those times.

In February, in the absence of virtually any bad news for stocks, a report showing the U.S. was adding jobs at a faster-than-forecast pace shook investors’ earnings euphoria and tax-cut optimism, triggering a selloff based on inflation fears that resulted in a 10 percent correction in the S&P 500 Index.

Fast forward a month, and suddenly Friday’s pending jobs report doesn’t seem quite so crucial. After all, President Donald Trump’s top economic adviser is leaving the White House as fear of a trade war grips markets from Canada to Australia. The European central bank is shifting its monetary policy. And the S&P 500 is struggling to find direction after a recent rout.

“Investors are clinging to every trade-related word that comes out of the White House, unsure if they need to put their helmet on or prepare for a relief rally, and this big unknown is what’s causing the volatility,” said Chad Morganlander, a portfolio manager at Washington Crossing Advisors.

Global markets have been swinging since late last week, as Trump’s threats of steel and aluminum tariffs were met with talk of retaliation in China and Europe. The U.S. president signed a proclamation Thursday afternoon that put the tariffs in effect but excluded Canada and Mexico and left the door open to sparing other countries on the basis of national security. The S&P 500 rallied 0.5 percent Thursday, down from its intraday high, while small caps slid for the first time in five sessions.

At some point, global concerns about trade will subside and investors will have to shift their attention back to economic fundamentals. A Bloomberg survey shows that Wall Street expects the jobless rate to fall to 4 percent and hourly pay growth to slip to 2.8 percent from 2.9 percent in the 12 months through February.

‘Enjoy The Respite’

Credit Suisse’s chief equity strategist Jonathan Golub advises his clients to focus on the jobs data and not so much on the prospect of a trade war. Why? Because Trump’s tariffs won’t have the same effect on business cycle, Federal Reserve policy and profit margins as higher wages growth.

Some investors disagree, saying that the expectation of more rate hikes is already baked into equity valuations. That’s not the case for the prospect of a full-fledged trade war, which could curb economic growth and shrink corporate profit margins.

“Right now the tariffs are going to be thing that roils the market or lifts it up,” said Stephen Carl, head trader at Williams Capital Group. “Not that the jobs data isn’t important, of course it is. But the tariff talk and the tariffs’ impact on our neighbors is going to be front of the ledger at the moment.”

Still, the market’s attention will invariably have to shift back to jobs data before long, according to Leuthold Group’s Jim Paulsen.

“Enjoy the respite,” Paulsen said. “Whether tomorrow’s wage number is too hot, too cold, or just right, a move to a 4 percent unemployment rate would put the economy in rarefied air and, at least by historical standards, on a new and more aggressive wage path during the balance of this recovery.”

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