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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Volatility began to rear its ugly head last week. Are the markets going to face more of the same next week?
Monday
Happy Labor Day!
Tuesday
Markets started the week broadly lower. The lone index in the green was the NASDAQ as perceived safe havens outperformed. Bonds continued their interest rate increases from prior week as a reaction to the weak jobs report continued.
Wednesday
The S&P 500 was little changed on the day; however, all major indices were lower. The only gainer was the broad bond market (traditional safe havens). This came on news that JOLTs job openings have increased to 10.934M, representing weakness in new job adds.
Thursday
In a continued trend from Wednesday all equity markets were lower. Fixed income continued to see rates fall in a safe haven bid. New jobless claims fell to a pandemic low of 310K last week. This signaled continued healing in our job market, a rebuke to the moves from Wednesday.
Friday
The S&P 500 was lower on the day and subsequently the week. It fell 0.8% on the day. Producer prices (PPI) rose more than expected in August (8.3% YoY). PPI represents manufacturer/retailer costs which should translate to future inflation. PPI running hot signals that inflation concern could persist into the near future.
Conclusion
This was not the best of weeks for the markets. The S&P 500 shed 1.7% of its value as concerns regarding the job market and inflation persisted. Holiday shortened weeks are typically quiet, however this also marked the beginning of September trading. September is the most volatile month of the year for stocks. So expect volatility to persist in the near term.
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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
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.