“We interrupt this program to annoy you and make things generally more irritating.”

That parody of a BBC news bulletin, uttered by John Cleese in an episode of Monty Python’s Flying Circus, reminds me of the chyrons nowadays on cable news. But the generally irritating news also provides a wall of worry to climb.

“Climbing the wall of worry” is an old Wall Street expression that refers to the stock market’s tendency to rise when investor fears don’t materialize. We saw this dynamic unfold in the final two weeks of March, as stocks overcame several worries to gain greater height.

Peace talks in the waning days of March between Russia and Ukraine provided bouts of hope; new economic data showed that the jobs market is expanding and wages are rising; and analysts projected that S&P 500 companies are on pace for respectable earnings growth. These sanguine trends possibly have momentum to continue, as the second quarter gets underway.

First, let’s review the recently concluded first quarter of 2022. March 31 marked the final trading day of Q1 2022. Overall, the quarter was lousy.

For Q1, the Dow Jones Industrial Average and S&P 500 closed down 4.6% and 4.9%, respectively. The technology-heavy NASDAQ shed 9%. For the three major U.S. stock market indices, Q1 marked the worst performance since Q1 2020, during the nadir of the COVID breakout, when the S&P 500 crashed by 20%.

Nine of the 11 S&P 500 sectors posted negative returns for Q1; the exceptions were energy (+39%) and utilities (+4.7%). Communication services came in last (-11.2%).

Stocks were pressured in Q1 2022 by the beginning of the Federal Reserve’s interest rate hiking cycle, rising inflation, and the Russia-Ukraine war.

Out like a lamb…

However, stocks exited the month of March like a lamb. The key U.S. averages racked up a robust rally in the final two weeks of the month; the S&P 500 and NASDAQ climbed more than 3% in the entire month of March, and the Dow rose 2.2%. A spate of unexpectedly good news cheered investors. See the following table:

The U.S. jobs report released Friday showed that the economy added another 431,000 jobs in March, bringing the unemployment rate down to 3.6% from 3.8% a month earlier, to hit a post-pandemic low. Employment in leisure and hospitality continued to increase, with a gain of 112,000 in March.

The U.S. economy has recovered more than 90% of the 22 million jobs lost during the worst of the pandemic lockdowns. The gradual healing of the battered jobs market bodes well for the stock market this year and into 2023 (see the following two charts):

Source: U.S. Bureau of Labor Statistics

At the same time, the U.S. labor force participation rate continues to rise and currently hovers at 62.4%, a sign that workers are returning to the workforce as COVID infection rates drop and fiscal stimulus fades. Average hourly earnings rose 0.4% in March, up 5.6% year-over-year.

It’s also a positive factor that American households are sitting on high household savings and still seem willing to spend, despite rising rates and inflation.

A warning sign…

But the bond market is signaling caution. The difference between 10-year and two-year U.S. Treasury yields inverted on two occasions this year, for the first time since 2019.

Read This Story: The Bond Market Is Flashing Yellow

An inverted yield curve happens when short-term interest rates are higher than long-term interest rates. An inverted yield curve is considered an indicator of recession, because it reflects pessimism about short-term economic conditions.

I’d be more worried about a looming recession if other indicators also heralded a slowdown. But growth projections for the economy and corporate profits remain strong.

The consensus of analysts is that inflation-adjusted U.S. gross domestic product growth will increase by 4% in 2022.

The corporate bottom line is another bright spot. According to the latest data (released April 1) from research firm FactSet, the estimated earnings per share (EPS) growth rate for the S&P 500 for Q1 2022 is 4.7%. That figure isn’t gangbusters, but projected EPS growth is staying on track.

What’s more, despite hotter inflation, rising interest rates, the bloody Russia-Ukraine war, and the emergence of highly contagious COVID variants in China, analysts have issued more Buy ratings on stocks in the S&P 500 as a percentage of their total ratings in more than 10 years.

Major economic data on the docket this week worth noting include the ISM services index (Tuesday); Federal Open Market Committee meeting minutes (Wednesday); and initial jobless claims (Thursday).

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John Persinos is the editorial director of Investing Daily.

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