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 markets soared last week. Do we have Santa to thank for this year end gift?
Monday
The S&P 500 surged to open the week. Initial indications regarding Omicron have shown less to be concerned about than originally thought. This is indicated by the resurgence of ‘reopening’ trade positions leading the way on Monday. The S&P 500 added 1.17%.
Tuesday
Markets pushed substantially higher on the day as fears around Omicron continue to fade. Technology stocks led the way as the NASDAQ out did the S&P 500. All major indices moved within reach of their all-time highs. The S&P 500 added 2.07% on the day.
Wednesday
Markets opened in the red for Wednesday as JOLT’s job openings topped 11M. A higher reading indicates availability of employment. This further justifies Federal Reserve Board (FRB) action to tighten monetary policy, which caused markets to retreat. They did claw their way out, however, as investor sentiment seems to improve every December… The S&P 500 ended the day 0.31% higher.
Thursday
The Job data keeps rolling in! Initial jobless claims came in at an incredibly low 188K. Under healthy economic conditions a normal reading would be in the low 200K range. So, these reading as of late are a strong indication of a healthy job market. Again, this is currently a net negative for stock market performance and markets slipped for the day. Good jobs data mean sooner FRB action to tighten monetary policy. The S&P 500 shed 0.71%.
Friday
Markets rose to close out the week. Much of the week was a hurry up and wait for Friday. Consumer Price index (CPI) (inflation gauge) came out Friday showing a 6.8% increase year over year. Headlines all read “The highest level since 1982!” To be clear 6.9% was expected. Also, CPI at its height in 1982 was 8.9% and for that cycle 14.8% (January, 1980). So, the positive response from markets was that the inflation increase was less than anticipated. Also, it likely means a more predictable FRB process ahead.
Conclusion
The S&P 500 added 3.82% for the week. It could be attributed to several things: strong job data, Omicron fears subsiding, or the Santa Claus Rally (yes that’s a thing). More likely it is a combination of inflation and Job data making the FRB approach increasingly predictable. It does mean less monetary accommodation, but it also means a predictable path, which investor can adjust for. This week will be important for that path as the FRB is meeting and announcing any potential changes in trajectory.
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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.