Stocks Down, All Eyes On Today's Employment Report  Image: Bigstock Stocks plunged yesterday as investors continue to fret over inflation. The honeymoon over Wednesday's 50 basis point rate hike was short-lived. The narrative after Wednesday's Fed announcement, and Mr. Powell's press conference, was that the 50 basis point move (including the likelihood of two more 50 bps hikes in June and July), coupled with the pronouncement that 75 bps was not under consideration, was aggressive enough to tackle inflation, but not overly aggressive which could potentially tip the economy into recession. But traders appeared to have a change of heart yesterday. Although, the reasoning varied. Some are suggesting that the Fed's 50 bps increments are not bold enough to arrest inflation, and they believe it was a missed opportunity to go bigger in future meetings, given that Fed Fund traders had already priced in a 91% chance of 75 basis points for June. But others, in spite of taking 75 bps off the table, still see the potential for three, half-point rate hikes, as plenty aggressive, not to mention the balance sheet reductions. And they believe those are aggressive enough to slow the economy down into a recession. This is the battle we'll see play out in the coming months. And it's the data that will ultimately decide who is right. Not helping matters was yesterday's Productivity and Costs report. It showed U.S. labor productivity fell by an annual rate of -7.5% in Q1 (the largest decline in nearly 75 years), while labor costs went up by 11.6% (or 7.2% over the last 4 quarters), for the biggest increase in roughly 40 years. The market rightly interpreted those stats poorly. It will have another chance to look at the economy today with this morning's Employment Situation report. The consensus is calling for 400,000 new jobs being created last month (390K in the private sector and 10K in the public), with the unemployment rate holding steady at 3.6% (a nearly 50-year low). One of the key arguments for those saying a recession is not in the cards is the strength in the labor market. So all eyes will be on this report. In addition to the jobs numbers, we'll also get a look at Consumer Credit. And, of course, earnings season continues on with another 177 companies set to report today, and another 1,670 on deck for next week. But the employment report is the main event. Should be a busy day. Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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