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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Stagflation was all over the news this week. What could job data mean for future inflation?
Monday
Markets tumbled to open the week. This was driven by inflationary fears as oil prices climb. Additionally, with stimulus wearing off, 2022 should see slower growth than 2021. This ultimately leads to fears of a stagflation environment.
Tuesday
In a rare occurrence, markets bounced the day after a pull back. They regained a large chunk of the losses from the prior day. This was largely a trade on overblown stagflation expectations as services outperformed.
Wednesday
Markets opened lower as promising employment data signals the Federal Reserve Bank (FRB) is more likely to begin tapering. Late in the day a debt ceiling deal was offered by one side of the aisle which buoyed investor sentiment. The deal is short in nature but does provide an additional 1.5 months to come to a longer-term deal. This was enough to lift markets into the close.
Thursday
The S&P 500 rose 0.35% on Thursday, however, it was higher early and faded throughout the day. Initial jobless claims fell more than expected, which contributed to gains. Otherwise, it was likely a continuation of the prior days enthusiasm for a debt ceiling deal.
Friday
Markets found themselves marginally lower on Friday as the monthly jobs report failed to impress. Nonfarm payrolls rose by 194K when 366K was expected. Potentially more concerning is the 61.6% participation rate in comparison to 61.7% last month. That might not sound like much of a change, but that means there were 170,000 less people looking for work.
Conclusion
The October jobs report will be an important measure of the job markets health. This would represent the first full month after elevated unemployment benefits fall off. Look for the first Friday of November to carry significant meaning. A good job report could signal better than expected future spending, but tamer supply side inflation. A weak report could signal continued pressures on supply side inflation and low growth looking ahead.
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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.