US Jobs, Eurozone Inflation, Private Credit | 3 Things You Need to Know This Week

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Andreina Mundarain:

Hello, and welcome to 3 Things You Need to Know This Week, our regular series designed to help you sift through the noise across financial media and understand what really matters for markets. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. And with that, here are three things you need to know this week.

First, March US jobs data.

On Friday, we'll get a fresh update on the state of the US labor market with the release of March's jobs report. This comes on the heel of February's reading, which saw non-farm payrolls contract by 92,000 jobs and unemployment rise to 4.4%. Speculation is already swirling in the financial media about what this data could mean for Federal Reserve policy. If March's report shows continued labor market contraction, some believe it could prompt the Federal Reserve to cut rates at their April meeting. The policymakers will likely weigh these employment figures against inflation risks stemming from energy price hikes tied to the conflict in the Middle East. But investors should remember that labor market data is inherently backwards-looking. March's employment figures reflect what already happened in the economy, not where it's heading. Stocks, on the other hand, are forward-looking, pricing-in expectations for the future. This fundamental difference is why we caution against overreacting to jobs data when making investment decisions. Instead of dwelling on backward-looking indicators, investors should stay focused on their long term financial goals.

Next, March eurozone inflation data.

On Tuesday, the eurozone will release its March Harmonised Index of Consumer Prices, or HCPI data, offering fresh insights into inflation trends across the region. In February, eurozone HCPI rose 1.9% year-over-year, slightly more than analysts predicted. Despite monthly fluctuations, inflation has remained consistently below 3% since October 2023. The big question for investors is how the recent spike in energy prices, driven by the conflict in the Middle East, will impact March's inflation numbers. Energy prices are often the most visible to consumers. While these price spikes are painful in the short term. It's important to remember that they're often temporary. For context, the last time energy prices faced similar upward pressure was in 2022, following the escalation of the Russia-Ukraine war. Oil prices peaked at $133 per barrel shortly after Russia's invasion, but returned to pre-invasion levels within six months. Natural gas prices, which particularly impacted Europe, followed a similar pattern. This demonstrates how quickly energy prices can normalize even amid ongoing geopolitical tensions. Another key point to consider is that Energy accounts for only about 9% of eurozone inflation. While rising gasoline and energy costs may grab headlines, Their influence on the broader inflation rate is more constrained than many realize. For investors concerned about inflationary pressures, history offers a reassuring perspective. Stocks have consistently proven to be a reliable hedge against inflation. With long-term average returns around 10%, stocks far outpace inflation's typical 3% rate. By owning stocks, investors can help offset inflation while increasing the likelihood of reaching their long-term goals.

Finally, private credit markets.

Private credit has been in the news lately, as several large asset managers have restricted withdrawals from their private credit funds. There is growing concern that these funds could face material headwinds, largely tied to bad loans made to struggling software companies. The software sector's downturn has been fueled by fears that artificial intelligence could disrupt or replace many software companies. Adding to the pressure, Moody's, a major credit rating agency, downgraded some private credit funds to "junk" status, citing the growing risk of defaults on loans to software firms. In response, some banks have launched full scale reviews of their loan books to identify unprofitable software companies. aAnd in some cases, they've restricted credit access for certain funds. As we highlighted last year in MarketMinder, investing in alternative assets, like private credit, often locks up your money for months or even years. This poor liquidity makes it incredibly difficult to access cash when you need it most. Unfortunately, this exact scenario is now playing out in real time. Some investors worry that turmoil in private credit markets could spill over into public markets. The concern is that investors may need to sell more liquid public assets to meet financial obligations, which could increase market volatility or even lead to a bear market. However, we believe this risk is limited. Trouble in private credit markets has been widely reported by the financial media, meaning public markets have likely already priced in the information. Public markets are highly efficient at discounting widely known risks. In our view, the likelihood of private credit causing significant disruption to public markets, in the near term, remains low.

And that's it for this episode of 3 Things You Need to Know This Week.

For more of our thoughts on markets, check out This Week in Review, released every Friday. You can also visit FisherInvestments.com. Thanks for tuning in, and don't forget to hit "Like" and "Subscribe."