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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In spite of a rocky start, markets grew nicely this last week. Should we expect more growth to come?
Monday
Markets dove to open the week. The S&P 500 lost 1.6%. Fears over slower growth due to the Delta Variant and rising inflation gripped the markets. Earnings did not fail to impress for the day, which resulted in a few highlights. However, they did not burn bright enough to offset the negative sentiment.
Tuesday
Markets rebounded strongly as the Monday move turned into a ‘buy the dip’ mentality. The S&P 500 ended up gaining 1.5% on the day. Housing starts out-performed, coming in at a 6.3% increase versus 2.1% the prior month.
Wednesday
The move higher continued on Wednesday, as earnings were in focus. Earnings pushed the markets higher as Netflix was the only major company to miss earnings on the day. The economic data calendar was light with mortgage data being the highlight.
Thursday
The S&P 500 advanced .20% on Thursday. It was a day where it felt as though the markets were chasing their own tail. Markets actually opened in the green, despite initial jobless claims missing expectations. It then fluctuated into the red fulfilling the economic data that was released, but ended back in the green… Investor sentiment has been running strong ever since Monday’s sell off.
Friday
Markets rallied into the end of the week, with the S&P 500 climbing 1.01% on the day. Manufacturing data outperformed, coming in at 63.1, beating the 62.0 expectation. Services fell short, falling to 59.8. While strongly expansionary, it missed the intended mark of 64.8. This is an indicator that the re-opening is moving slower than expected. A slower re-opening could signal that inflation may not be as ramped as initially thought by many investors.
Conclusion
The strong Friday performance brought the week to a close up 1.95% on the S&P 500. This was an impressive week of gains when you consider that the S&P 500 lost 1.6% on Monday. The rebound and strong close on Friday are a testament to earnings. They are currently running at 86% of companies beating expectations. We are about a quarter of the way through earnings season, so there is still much to look forward to.
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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.