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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The Federal Reserve is telegraphing their moves. Does this put a target on the back of markets?
Monday
Markets opened the week in the green. The S&P 500 continued from Fridays gains and rose 0.85% on the day. This was in spite of softening PMI data. Specifically concerning was the fall in services data as that makes up the majority of economic activity in the US. The fall, however, was to a level that is still expansionary. It just means we should see a lower level of GDP in the 3rd quarter. Good news on the day included a rise in existing home sales, by 120K units for the month.
Tuesday
The S&P 500 rose marginally on Tuesday. Economic data was fairly light and the focus was on Federal Reserve Board (FRB) Chair Powell’s speech coming on Thursday. New home sales did increase from the prior month by 1.0% (July), missing expectations of a 3% increase.
Wednesday
In another muted day of trading, The S&P 500 was up 0.25%. Again, focus intensified on tomorrow’s Jackson Hole Symposium speech by the FRB. Core durable goods orders, a good indicator of future demand, rose 0.7% (July). All week, FRB members have been sounding the call for tapering of the FRB bond buying program. This has kept what would have been a strong week, rather tepid.
Thursday
The S&P 500 fell 0.65% on Thursday. This came as the FRB Chair confirmed concerns regarding tapering. They do intend to begin tapering later this year. Assuming the economy maintains I’s trajectory of growth.
Friday
In a re-occurring theme, the S&P 500 made back all of Thursdays losses and then some on Friday. It rose nearly 1%. Core PCE pricing was released Friday showing that inflation has increased 3.6% YoY (July). The black mark on the day was that consumer sentiment preliminary reports is reading at 70.3. A large drop from last month. This is concerning for future spending expectations.
Conclusion
The S&P 500 rose 1.52% in a week where the FRB confirmed tapering of bond purchases will occur later this year. The telegraphed nature of Chair Powell’s behavior should allow market shocks from FRB activity to remain muted. A major part of his statement was that tapering is contingent on continued economic strength, which appears to be fading. A tightening FRB is unlikely in an environment with waning economic production.
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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.