Market Watch: March 31, 2023

For the four trading days covered in this report, the Dow gained 622 points to close at 32,859, the S&P 500 gained 80 points to settle at 4,051, while the tech-heavy Nasdaq gained 190 points to close at 12,013. In Canada, the TSX climbed 440 points to end at 19,941.

Strategy

U.S. Fed expects a significant increase in the unemployment rate this year

The labour market has been a bright spot in an otherwise dimming economy weighed down by high inflation and rising interest rates. This is the case globally, where employers in the U.S., Canada, and Europe have been keen to hire workers. With the jobs market continuing to exhibit strength, investors have contemplated whether a soft landing (lower inflation without a recession) could be on the cards. In our view, a strong labour market could help mitigate some of the adverse effects of higher interest rates; however, unemployment has historically bottomed before the start of recessions. Using the U.S. as a case study, a cyclical low in the unemployment rate – defined as the lowest point between recessions – occurs about eight months before the onset of a contraction. In January 2023, the U.S. unemployment rate fell to a 53-year low before rising to 3.6% in February. According to the latest forecast published by the U.S. Federal Reserve, the unemployment rate is expected to rise to 4.5% by the fourth quarter of this year. Based on the latest labour force metrics from the Bureau of Labor Statistics, a 100 bps uptick in the U.S. unemployment rate would leave over 1.6 million Americans jobless. Additionally, according to one recession indicator dubbed the Sahm Rule, a recession follows when the change in the 3-month moving average of the unemployment rate exceeds 0.5 percentage points relative to its low during the preceding 12 months.

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by Scotia Wealth Management - The Zukiwsky Group

Market Watch: March 31, 2023

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