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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Welcome, 2022! There was a quick shift in market behavior as the calendar rolled over. What does it mean for the year?
Monday
The week began much as it ended. The low volume trade continued, resulting in an S&P 500 that rose 0.6%. Interest rates rose as expectations increased, speculating that Federal Reserve Board (FRB) minutes would reflect a more hawkish central bank.
Tuesday
The mild market activity continued on Tuesday. The S&P 500 ended the day down 0.1%. In sharp contrast, the Nasdaq slid 1.3% as we see leadership focused on Value stocks over Growth stocks.
Wednesday
Markets dove on Wednesday on FRB minutes that showed a more hawkish FRB. Taper, hike, and reduction of the balance sheet all to be on the table for March. Value outperformed Growth again, but everything fell. Hikes being on the table for March means that 3 to 4 hikes are possible for 2022.
Thursday
There was no dead cat bounce on Thursday in response to the fall on Wednesday. A dead cat bounce is when markets surge in response to a fall the prior day but fall short of recapturing the previous high. Interest rates remained elevated on the week in response to a hawkish FRB. ISM serviced data underwhelmed, falling 4 points short of the expectation. Omicron infection rates likely played into the slowdown.
Friday
Happy Jobs Friday! Jobs added missed expectations as the impact of Omicron began to make itself known. This generated lower rates and a sideways market at the open. The impression being that the FRB will have reason for a pause in March should jobs continue to show slow gains.
Conclusion
The volatility of the markets rose 2 points across the week. Additionally, 10-year treasury rates climbed 14 basis points. Both were most notably impacted by an aggressive FRB report. Volatility is really an indication of the next month or so. In contrast, the interest rate move is more likely an indication of 2022. The FRB is now expected to be more aggressive on the interest rate front. Tighter rates do mean less consumer spending, which lead to less corporate earnings. If done right, a balance can be reached, allowing for a good year for equities.
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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.