Wall Street Brunch: DOGE In The Jobs Data?

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Payrolls seen rising by 150,000 with jobless rate staying at 4%. (0:18) Target set to report earnings. (1:46) DeepSeek claims cost-profit ratio of 545%. (3:01)

The following is an abridged transcript:

The February jobs report arrives this week in a more dovish environment than the January numbers.

The figures arrive premarket Friday as usual, with economists expecting that nonfarm payrolls rose by 150,000 and the unemployment rate stayed steady at 4%. Average hourly earnings are forecast to have risen by 0.3%.

Following a relatively weak January payrolls print and benign core PCE price index countering a hot CPI, the market is once again pricing in a quarter-point Fed rate cut in June and three cuts by the end of the year.

But Wells Fargo economists noted that this past week “officials expressed the desire to hold rates steady on account of stalled inflation and increased uncertainty. All told, recent Fed speak supports our view that mounting upside inflation risks will keep the FOMC on hold over the next several meetings.”

Wall Street will also be looking for any impact on the date from the federal layoffs implemented by DOGE.

Wells Fargo says federal payrolls will likely see a decline of 5,000 to 10,000 this time around.

A “decline of federal employment in the realm of 25K-50K spread over the next few months seems reasonable,” they added, but “from what we know now the reductions in the size of the federal workforce will not alter the overall trajectory of the labor market over this year.”

“Even considering the noise and near-term headwinds to job growth, we would stress that federal civilian employment makes up a small portion of total payrolls (1.5%) in the United States. Furthermore, we were already expecting slower hiring and modest upward movement in the unemployment rate this year as labor demand remains tepid and labor force growth slows.”

Earnings are thinning out this week, but Target’s (NYSE:TGT) numbers will be closely watched following Walmart’s (WMT) cautious guidance that raised worries about consumer spending.

Analysts expect Target to post EPS of $2.25 on sales of $30.85 billion for its fiscal Q4 on Tuesday. In the last 90 days there have been 24 upward revisions to the bottom line vs. just 2 downward revisions. On sales there have also been 24 upward revisions and no downward revisions.

For fiscal Q1 the forecast is for EPS of $2.06 on sales of $25.13 billion.

SA analyst FutureRich Investing, who has a Buy on TGT, says “it is quite clear that even with low future financial and dividend growth, (the shares) intrinsic value is higher than their current trading price.”

With “the broad market current overvaluation, in the near future, many investors will prefer to invest into more stable, well established companies with lower P/E ratios (cheaper), such as Target,” they added.

Also on the earnings calendar:

On Monday Okta (OKTA), GitLab (GTLB), California Resources (CRC) and Surgery Partners (SGRY) report earnings.

Joining Target on Tuesday are CrowdStrike (CRWD), Sea Ltd. (SE), AutoZone (AZO) and Ross Stores (ROST).

Marvell Technology (MRVL), Veeva Systems (VEEV), Zscaler (ZS), Brown-Forman (BF.A)(BF.B), and Campbell’s (CPB) weigh in on Wednesday.

On Thursday, Broadcom (AVGO), Costco (COST), Kroger (KR), Burlington Stores (BURL), and BJ’s Wholesale (BJ) issue numbers.

In the news this weekend, DeepSeek (DEEPSEEK) claimed a theoretical daily cost-profit ratio of 545% related to its V3 and R1 models, but it warned that actual revenue would be much lower.

The AI startup’s post on GitLab was the first time it disclosed any profit margin information from “inference” tasks, which is the stage that involves trained AI models making predictions and doing tasks after they have been trained.

DeepSeek said in the post that, assuming the hourly rent for an Nvidia (NVDA) H800 is $2, the total daily inference costs for its V3 and R1 models would be $87,072. It said, in contrast, theoretical daily revenue generated by the models is $562,027. That would total more than $205 million in revenue in a year.

But DeepSeek said actual revenue would be “substantially lower” because the cost of using its V3 model is less than the R1 model, just some services are monetized, and developers pay less for off-peak usage.

And Beijing is telling artificial intelligence researchers and entrepreneurs to avoid visits to the U.S. That’s according to The Wall Street Journal.

Officials are worried that Chinese AI experts traveling could disclose confidential information on the country’s progress with AI.

Sources said there is no outright travel ban, but there is guidance from Chinese official discouraging local AI executives and those in other sensitive industries to avoid nonurgent trips to the US and its allies.

For income investors, McDonald’s (MCD), Nike (NKE), Lockheed Martin (LMT) and Sherwin-Williams (SHW) all go ex-dividend on Monday.

McDonald’s pays out the same day they’ll be serving Shamrock Shakes, March 17. Nike pays out on April Fool’s Day, Lockheed has a payout date of March 28 and Sherwin-Williams pays out on March 14.

And in the Wall Street Research corner, BlackRock strategist Rick Rieder says the traditional hedging role of bonds in portfolios has waned and investors should be optimizing for income.

Last year, returns across 70,000 debt securities were negatively correlated with duration and positively correlated with starting yield.

“The takeaway is straightforward — when hedging value is negative, and repayment schedules come with historically high certainty, fixed income investing today should prioritize income over interest rate risk,” he said.

He highlighted the 4% underperformance in the interest-rate oriented Bloomberg US Aggregate Bond Index against cash in 2024. Meanwhile, income-oriented fixed-income exposures outperformed cash — as did the S&P 500 (SP500) and the Nasdaq (COMP:IND) — by 20%.

“Consider that a diversified, income-oriented portfolio utilizing the full-global fixed-income universe would have markedly outperformed the US AGG every year since the pandemic … with nearly half the volatility,” he added.

“The traditional role of bonds as a hedge is no longer reliable.”