Why February’s Jobs Report and SIVB Bank Are a Deadly Dose for Stock Markets (SP500)

When the US Bureau of Labor Statistics announced that job growth was measurably lower than the expected 500,000 increase, markets temporarily rebounded in the morning. This proved a short-term rally that repeated the previous day’s trading pattern. hours later Jobs report, announced by the Federal Deposit Insurance Corporation will shut down Silicon Valley Bank (SIVB).

The incident that seems separate from the jobs report is closely related. The Fed will need to influence the strong jobs report and hawkish (tightening) interest rate policy and its impact on regional banks.

Job increase in February 2023

The economy added in February 311,000 jobs in the name of The unemployment rate rose to 3.6%. The addition is an expected decrease from January. It is also less than half of the jobs added a year ago. Last year, the central bank did Do not raise interest rates as economic activity accelerates.

Job growth slowed dramatically last March and April only to hover around the 300,000 level. Last month, jobs grew the most in leisure, hospitality, retail, government and healthcare. Employment decreased in the information, transportation and warehousing industries.

Investors should not allocate their portfolio based on month of job growth and decline by sector. Those who do should note what consumers are willing to spend their diminishing disposable income on.

Entertainment and hospitality

The Covid lockdown has created pent-up demand for travel, leisure and hospitality. In the year-to-date, Hilton Worldwide (HLT) gained 12.4%, outperforming the S&P 500’s year-to-date return by just 0.91%. HLT shares trade at a premium, so their valuation grade is “F.”

The hotel rewards investors with an A+ growth and profitability rating.

Last quarter, it posted revenue growth of 33.1% year-over-year to $2.44 billion. It easily exceeded the high end of guidance with adjusted EBITDA of $740 million in the fourth quarter.

CEO Chris Nassetta said the industry is facing the lowest levels of supply in years. It still gets very strong demand. Customers spend less but travel more. International markets are opening up, boosting Hilton’s business in the Asia Pacific and Japan regions. Once China travel volumes pick up momentum, expect Hilton guidance to pick up in the second half.

Retail

According to a Google search, JD.com (JD), Alibaba (BABA), Home Depot (HD), CVS Health (CVS), and TJX are companies in the retail sector. Investors should not consider Chinese e-commerce stocks at this time. The US jobs report directly affects domestic retail demand.

Last week, JD announced a solid dividend of 62% per share and generated $42.8 billion in revenue. I got 70 cents a share. JD stock is down about 10% after the rather good results. This is a bearish signal that brought Alibaba down with it. Investors should not ignore the escalating trade war between the US and China.

The United States protects its intellectual property by restricting chip exports. Holland Recently supported America’s efforts.

health care

Healthcare added 19,000 jobs in hospitals and 14,000 jobs in nursing and residential care facilities. Investors should not rush to buy the cheapest REIT with the highest return. Medicinal Properties (MPW) gets a slew of excellent coverage on this site. Its sudden decline from the $12.00 support to close at $8.79 is worrying. MPW stock pays a dividend of 13.2%.

Income investors may raise the 5.0% to 5.4% minimum return requirement to 6.0%. Even assuming a federal funds rate in this range, investors should not buy medical properties for twice their return at the federal funds rate.

sectors at risk

technology

The decline in hiring decreased in the information industry, dropping by 25,000 jobs. In 2023, 480 tech industries will cut 128,202 jobs, According to layoffs. Technology investors need to back off. Huge companies like Meta Platforms (META) and Alphabet (GOOG) (GOOGL) have hired too many employees during the pandemic. They assumed the stay-at-home trend would continue forever. CEOs project steady growth over several years.

GOOG stock:

Above: Alphabet is very profitable from its trading business. the US government ban on TikTok will reinvigorate the horizons of YouTube. Government employees have 30 days to delete the app.

A rate hike by the Federal Reserve almost immediately ended the growth in technology. Firms were late in purchasing orders. They shortened contract durations and dollar size. Look out for companies like Cloudflare (NET) reporting slower growth. Customer demand from startups will hurt Cloudflare.

DocuSign’s (DOCU) poor billings are another example of a slowdown in companies that have thrived during the pandemic.

Low transportation and storage functions

Trucking companies like Knight-Swift Transportation (KNX) could collapse from their bullish streak. The firm has strong profitability while growth and valuation are unfavorable:

META stock is similar to GOOG stock, although it is ahead in profitability.

Meta will maintain its improved earnings as it cuts jobs in its “efficiency year”. She has the financial freedom to continue investing billions in her metaverse project.

SVB Finance

The Silicon Valley bank’s Quant Sell rating since July 2024 will reward short sellers. Its failure is significant. The Fed may bypass the FDIC-mandated shutdown of the regional bank. This would pave the way for a 50 basis point rate hike.

The Fed may also assess the risk of bank failure for other regional banks and their clients. You wouldn’t care that Roku (ROKU) owns about 26% of the cash and cash equivalents in the Silicon Valley bank. The bigger takeaway is that most customers have deposited money with Bank of America (BAC) or CitiGroup (C).

What do you watch next

Watch the CPI report next Tuesday. Together with the jobs report, the Fed will have the necessary data points to decide how much to raise interest rates.

Investors may continue to purchase rated money funds and bond funds. Here are their daily returns on March 10, 2023, ranked by return:

The PIMCO 25+ Year Zero Coupon US Treasury Index (ZROZ) ETF is the most compelling. It had a lot of upside this year when interest rates finally fell in 2024. It rose 4.84% when investors panicked and halted cash in bonds and gold. ZROZ stock is up 6.94% year-to-date.