Since the year started, the broader benchmark S&P 500 is up about 7%. That's probably better than where most investors expected it to be at this point in the year, given the high-interest-rate environment and possible recession. But after the abrupt banking crisis that hit in March and led to several prominent banks failing, volatility has resumed and cast uncertainty about where the market is headed.
Still, the year is only about one-fourth of the way through, and there are many scenarios that could play out. Here are three things that could get the stock market rolling in April.
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1. The March jobs report
Don't kid yourself: Inflation is still top of mind for Fed Chair Jerome Powell and other members of the Federal Reserve, who have raised interest rates from practically 0% to inside a range of 4.75% to 5% in about a year's time. But the Fed is still unhappy with the results.
Powell has consistently said that the Fed needs to see cracks in the incredibly strong labor market because that has kept demand high and enabled consumers to essentially spend through the large increase in consumer prices. In February, the U.S. economy added 311,000 jobs, which was stronger than economists had expected. The unemployment rate rose slightly to about 3.6%, and average hourly wages climbed only 0.2% from January, which I think most investors took as a sign that the labor market could be slowing.
The March report will come out on April 7, and investors will be looking for further signs of the labor market cooling, such as fewer jobs added to the economy, a higher unemployment rate, and a continued slowdown in average hourly wage growth. That said, I don't think the market wants to see too sudden of a rise in unemployment because that could spark fears of a more intense recession.
2. Cooling consumer prices
Another key data point the Fed will surely be watching is the Consumer Price Index (CPI), which tracks prices on a market basket of consumer goods and services and is a key gauge for inflation.
There's definitely been some progress on this front over the last few months. In February, the CPI rose 0.4% on a monthly basis and was up 6% year over year, which was pretty much in line with what economists had been expecting. But shelter costs, including rent, remained stubbornly high, rising 0.8% monthly. After the Fed's last meeting, Powell noted that the Fed is not seeing enough cooling in the non-housing services sector, which is being driven by the strong labor market. That's why the jobs report is very important as well.
The March CPI data will be released on April 12. With the current banking crisis, traders have been pricing in interest-rate cuts earlier this year. But there's no way that happens unless the data shows inflation and the economy slowing in a meaningful way. If the Fed sees proof of this, it could create a path for the Fed to eventually cut rates, which could certainly get the market going.
3. Positive bank earnings
With the collapse of three U.S. banks in March and the forced acquisition of Credit Suisse, the market has been on edge, wondering what kind of contagion there might be and whether other banks will need to be saved by the government or forced into an acquisition. Banks power a lot of the economy, so if they struggle, the economy can as well.
The large banks will kick off the first-quarter earnings season in mid-April, followed by regional and other community banks later in the month and into May. Now, I'm not exactly expecting earnings to be good because banks will likely be dealing with higher deposit and funding costs, which will pressure their margins.
But some stabilization on deposit flows and improving trends, particularly among regional and community banks, could go a long way in shoring up confidence in the banking system and economy, which could also help the market. Investors want to see that the banking system is, by and large, in sound shape and that the banks that failed were outliers.
