Myles Udland · Head of News
The first week of March will bring investors a crucial jobs report and a
range of key retail earnings that could have the potential to either
stoke or allay fears about the US economy and the consumer showing some
signs of stress.
The February jobs report out Friday is expected to show hiring rose
modestly last month while the unemployment rate held steady at 4%.
And earnings reports from the likes of Target (TGT), Costco (COST),
Kroger (KR), and Abercrombie & Fitch (ANF) will offer more color on
the state of the US consumer quickly losing confidence on the economic
outlook.
On the policy front, new tariffs on Canada, Mexico, and China are all
set to take effect on March 4.
Last week, the major averages were a mixed bag in the end, with the Dow
(^DJI) eking out a weekly gain while the tech-heavy Nasdaq (^IXIC) lost
over 4%. After forfeiting its year-to-date gains at the week's lows, the
S&P 500 (^GSPC) enters March just barely in the green.
Nvidia's (NVDA) earnings report on Wednesday showed AI investment
remains robust, but with the stock's huge run-up and expectations
sky-high, shares ended the week down over 9%.
A sharp drop in bitcoin (BTC-USD), which briefly cracked $80,000 for the
first time since early November, also reflected the market's overall
risk-off stance that dominated the week's proceedings.
And that brings investors into the month of March with more questions
than answers as tariff deadlines loom, the Federal Reserve's next
meeting fast approaches, and the US economy faces the burden of trying
to disprove investors' fears about a growth scare.
Labor letdown watch
For years, the US economy has
faced predictions of an impending downturn. For years, the US labor
market has continued to be at the center of pushing off those concerns.
In March, the story may be much of the same.
Wall Street economists expect there were 143,000 new nonfarm payroll
jobs created last month while the unemployment rate held at 4%.
But clear signs of softness in the job market have been emerging for
months.
Initial jobless claims last week reached their highest level of the
year. Continuing claims for workers that have been receiving
unemployment benefits for longer than a week continue to rise.
The JOLTS report has shown a consistent decline in the number of open
roles as the ratio between this measure and the number of unemployed
workers quickly approaches 1.
Adding another wrinkle to the US labor outlook are the actions out of
Washington, where the Elon Musk-led Department of Government Efficiency
(DOGE) has set the table for a sharp pullback in government employment
to weigh on this data in the months ahead.
"Despite the headlines, the three-pronged attack on the federal
workforce by President Trump and Elon Musk in recent weeks — the hiring
freeze, buyout offer, and mass layoffs of probationary workers — should
have minimal impact on February’s payroll," wrote Capital Economics
economist Bradley Saunders in a note on Thursday.
Looking forward, however, the state of play may not be so benign.
"Layoffs are also likely to accumulate more over time given the
administration's plan to further reduce the Federal workforce," wrote
Bank of America's economics team led by Aditya Bhave on Friday.
"We estimate that the direct effect of the administration's actions
could amount to a reduction of more than 200k in Federal employment by
the end of the fiscal year." The government's fiscal year, we'd note,
ends on Sept. 30.
BofA's team also notes federal contractors could rein in hiring
depending on where budget cuts do or don't materialize from Congress.
Moreover, a slowdown in spending from federal workers who lose their
jobs would be a drag on overall activity too.
"In short," BofA wrote, "the actions taken to reduce the size of Federal
employment are an upside risk to our yearend unemployment rate forecast
of 4.2%."
Retail reality check
Every retail company tells two
stories — its own and the economy's.
In the week ahead, the three most prominent retailers that will report
results — Costco (COST), Abercrombie & Fitch (ANF), and Target (TGT)
— have plenty to say on both.
Costco has been a decades-long winner. The late Charlie Munger, a former
board member, once said it was a "perfect damn company" save for its
expensive stock — shares of Costco currently trade at 60 times last
year's earnings.
Its customers and investors are fanatics. The no-frills appeal of a
Costco warehouse and the headache of navigating its parking lots on a
busy weekend are well-known.
Back in December, the company said on its earnings call, "We're seeing
the member being very choiceful about how they're spending [their]
dollars." Economic data of late would suggest these trends have
continued.
Target has lost ground to its bigger rivals — notably Walmart — over the
last several years.
After its most recent quarterly report in November, the stock fell 20%.
In January, the company tried to calm investor nerves by announcing
holiday sales rose 2.8%, with the company notching records on Black
Friday and Cyber Monday.
Still, that update came with no change to its profit outlook.
Target stock comes into this week's report down over 8% this year and is
trading near its lowest level since November 2023.
"When we assess the consumer and macro environment, we're seeing many of
the same themes that have defined the environment for some time," Target
CEO Brian Cornell told investors in November.
"Consumers tell us their budgets remain stretched and they're shopping
carefully as they work to overcome the cumulative impact of multiple
years of price inflation."
Abercrombie, meanwhile, has ridden a dual wave of hitting Gen Z trends
and a wave of millennial nostalgia and has been one of the best stories
in apparel over the last five years.
Over that time, the S&P 500 has doubled; Abercrombie stock is up
over 600%.
While Costco and Target are merchants of household essentials,
Abercrombie is more positioned to benefit from the US consumer's
relentless ability to find the money to refresh their wardrobe.
"We are no longer a jeans and T-shirt company," CEO Fran Horowitz said
in November. "We're really, truly a lifestyle brand. The consumer comes
to us now, in their early 20s. They stay well into their 40s."
In the depths of the pandemic, some investors arrived at ANF stock in
the single digits. Some of them will enter March 2025 over $100.
Bank of America's 'bro bubble'
The causes of any period of
market stress or euphoria can always be debated.
Prices leave less room for interpretation.
Tech stocks lagged last week, and some of the most notable trades that
gripped investors after President Trump's election win showed real signs
of weakness.
Tesla (TSLA) stock finished February down almost 30% for the month;
shares have now gone basically nowhere since Trump's win.
Similarly, bitcoin has nearly round-tripped from the $70,000 level it
stood at before election night.
In a note to clients on Friday, Bank of America strategist Michael
Hartnett, one of the more colorful commentators on the Street, noted
weakness in bitcoin and its inability to hold in the mid-$90,000s "was
[the] first sign [of the] 'bro bubble' popping."
Also in this group, in Hartnett's view, are names like Meta (META) and
Palantir (PLTR), along with the S&P 500 and Nasdaq.
With US polls still open on the afternoon of Nov. 5, the S&P 500
closed at 5,783. On Friday, the index closed at 5,912.
In Hartnett's view, the index returning to this level — which it touched
during the day on Thursday — "[would be the] first strike price of [a]
Trump put, below which 'Stocks Down Under Trump' headlines begin, below
which investors currently long risk would very much expect and need some
verbal support for markets from policymakers."
During his first term in office, Trump was a regular commentator on
movements in the stock market.
Trump's second term has taken a different shape, with more focus on
tariffs, the Treasury market, and DOGE.
What it might take to bring the president's attention back to the stock
market is up for debate, but the price of stocks when the moment comes
will leave little doubt.
Economic calendar
Monday
Economic data: S&P Global
Manufacturing PMI, February (51.6 previously); ISM Manufacturing PMI,
February (50.5 expected; 50.9 previously)
Earnings: Plug Power (PLUG), GitLab (GTLB), Okta (OKTA), B. Riley
Financial (RILY)
Tuesday
Economic data: No notable
economic data expected.
Earnings: Target (TGT), Best Buy (BBY), AutoZone (AZO), On Holding
(ONON), CrowdStrike (CRWD), Nordstrom (JWN), Ross Stores (ROST)
Wednesday
Economic data: ADP Private
Payrolls, February (+148,000 expected; +183,000 previously); S&P
Global Services PMI, February (49.7 previously); ISM Services PMI,
February (53.0 expected; 52.8 previously); Factory orders, January
(+1.4% expected; -0.9% previously); Federal Reserve Beige Book
Earnings: Abercrombie & Fitch (ANF), Foot Locker (FL), Campbell Soup
(CPB), Thor Industries (THO), Dine Brands (DIN), Marvell (MRVL), MongoDB
(MDB), Rigetti Computing (RGTI), Victoria's Secret (VSCO), Veeva Systems
(VEEV)
Thursday
Economic data: Initial jobless
claims, week ending March 1 (242,000 previously); Trade balance, January
(-$91.3 billion expected; -$98.4 billion previously)
Earnings: JD.com (JD), Costco (COST), Broadcom (AVGO), Hewlett Packard
Enterprise (HPE), Kroger (KR), BJ's Wholesale (BJ), The Gap (GAP),
Macy's (M), Burlington Stores (BURL), Toro (TTC), Cracker Barrel (CBRL),
BigBear.ai (BBAI)
Friday
Economic data: Nonfarm
payrolls, February (+158,000 expected; +143,000 previously);
Unemployment rate, February (4% expected; 4% previously); Average hourly
earnings, month-on-month, February (+0.3% expected; +0.5% previously);
Average hourly earnings, year-on-year, February (+4.2% expected; +4.1%
previously)
Earnings: Genesco (GCO)
