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Markets Trimming Excess Ahead of Spring

Reminiscent of adults currently trying to work off the extra pounds they’d gained over the winter (not to mention a year-long pandemic), market indexes continue to shed some of their excess for another trading day, melting some of the bulk from Tech (down 1.9% on the day) and Consumer Discretionary (-1.8%). The Dow slid into the red just before the bell, -0.38%; the S&P 500 dipped 1.3% on the day, and the Nasdaq fared the worst: down 361 points, or -2.70%.

Once again, we did not see a lot of data to justify the size of the downward moves. Services data today was mixed: Markit Services PMI came in nearly 100 basis points above expectations to 59.8, while ISM Services posted 55.3% — down from the projected 58.7% for February. For ISM, this is the lowest read since the index pushed over 50% nine months ago; for PMI, it’s the highest level we’ve seen for six years.

A new Beige Book released this afternoon promoted mild optimism on what is expected to be a stronger rebound on good recent news, especially regarding the pace of new vaccinations. (Full access to Covid vaccines for all adults in the U.S. has now been moved to the end of May from July.) Most districts reported moderate increases in both demand and pricing, while conditions within certain broad sectors tended to vary widely.

Take real estate, for example: continued robust demand for both new and existing housing was prevalent in most of the 12 major metropolitan districts, while there was some deterioration in the hotel, retail and office buildings. Meanwhile, steel and lumber costs rose, matching demand in the construction space, while higher fuel prices, agriculture conditions and transportation all saw notable — if modest — increases.

Labor supply shortages were cited, especially among low-skill and skilled-trade positions. We saw this morning in the ADP ADP private-sector jobs report than Construction and Manufacturing both posted job losses last month. Tomorrow, we’ll track new and continuing jobless claims for the past two weeks; Friday brings us the big Employment Situation numbers, including a new Unemployment Rate. The labor market will also be closely watched by Fed presidents ahead of their next meeting in a couple weeks.

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