There was an onslaught of data last week, which led to gains. Should more be expected with the coming earnings season?
Monday S&P 500 0.27%| NASDAQ 1.09%
ISM Manufacturing unexpectedly slipped and remains in contractionary territory. The weaker economic data would typically signal lower rates as rate cut expectations would increase. To the contrary, 10-year treasuries rose on the day. In the face of weak economic data, the start of the quarter brought optimism towards the next three months.
Tuesday S&P 500 0.62% | NASDAQ .84%
JOLTs job openings rose more than expected to 8.14M openings. For perspective, there were 6.6M unemployed as of the May report. The strong jobs data did not deter markets, though; this may be because the Federal Reserve Board (FRB) Chair, J. Powell, spoke on the day. He indicated that progress is being made towards their inflation target. This is the ‘secret sauce’ needed to justify future rate cuts.
Wednesday S&P 500 0.51% | NASDAQ 0.88%
Initial jobless claims rose for the week to 238K from 234K; the level remains elevated, albeit from all-time lows. Factory orders unexpectedly slipped into the negative on the month. Additionally, ISM Services unexpectedly slipped into contractionary territory. This is all bad news for economic production, so why did the markets rise? Interest rates fell as this data increases the likelihood that the FRB will lower rates sooner than expected. The heightened odds are now calling for a .25% cut in September and December, according to CME FedWatch.
Thursday S&P 500 -% | NASDAQ -%
Happy Independence Day!
Friday S&P 500 0.54% | NASDAQ 0.90%
Happy Jobs Friday! The unemployment rate rose to 4.1%, Nonfarm payrolls beat expectations, and participation rose to 62.6% from 62.5%, all for June. The unemployment rate went up even though we added 206K jobs??? Participation went up so, with more people in the market, the rate can go up even as jobs are added. This is a positive signal that workers are returning to the work force. The rise on equity markets, however, was on hopes that economic weakness would be enough for an FRB rate cut.
Conclusion S&P 500 1.95% | NASDAQ 3.55%
This was a busy week for economic data, especially for a holiday shortened week. We got weaker Jobs, manufacturing, Services, and Factory orders. The weakness led to stronger markets on hopes the FRB will cut rates BEFORE a recession can materialize. The coming week starts second quarter earnings. Valuations are stretched (S&P 500 P/E: 28.94) and economic production is weak, very little should be expected from this season. This could be the start of volatility that would lead into the Autumn.
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There was a little run up on markets from a point total standpoint, but volatility was way up. What does it mean?
Monday
Happy 4th of July!
Tuesday
Markets dove on Tuesday to open the week. The S&P was down nearly 1% by mid-day but came back to end the day down 0.2%. The Delta variant took center stage as concerns are mounting that it could derail the re-opening trade currently in place.
Wednesday
The S&P 500 reached fresh all-time highs. The improved investor sentiment was on the release of Federal Reserve Board (FRB) minutes. They reflected a dovish FRB heading into the second half of 2021. The interesting thing was that interest rates in the treasury market were down. So, while there was a bid in the equity markets, there was not a sell off in bonds. This makes the rally more conservative.
Thursday
Broadly all major indices were down on Thursday. This came as the Delta variant surpassed the Alpha variant as the dominant COVID strain in the US. Continued stress over the variants will likely keep markets from climbing unfettered.
Friday
Markets surged back on Friday and ended in the green for the day (and the week). Yields increased mildly as gold and oil both surged, which are both bullish and bearish at the same time. The increase on a Friday again is a good sign that little negativity is expected across the weekend news cycle.
Conclusion
The S&P 500 rose a meager 17 points for the week. The point line, however, is deceptive as it was a volatile week. The CBOE VIX (Volatility measure) increased from 14.5 to 17.5 as the daily swings were in excess of those in the prior week. The coming week will have economic data in the form of retail sales and industrial production. The variant progress will continue to be watched as well. Additionally, GDP for China will be reported giving further indication to US consumption via Chinese exports. Increased volatility is not surprising as we move into summer months. The reduced volume is the result of summer vacations. With lower volume comes increased volatility. Increased volatility does not necessarily come with losses, it just means the swings are more violent.
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Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.