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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Markets were little changed last week, but the economic calendar was not light. What’s holding markets at bay?
Monday
Markets gained on Monday as the week got underway. The move was broadly bullish. We saw safe haven assets retreat while risk assets gained a bid. This rise on Monday led to record closes for many indices. While bullish, gains were meager as markets await the results of the Federal Reserve Board (FRB) meeting later this week.
Tuesday
The red-hot housing market continues to gain value as home prices rose 18% over the last 12 months. Markets pulled back from their record highs on Tuesday as durable goods orders missed expectations. On a positive note, the CB consumer confidence measure remained high at 129.1. It was expected to fall to 123.9.
Wednesday
Markets struggled to find their north early as they awaited the results of the FRB meeting. Nothing changed after the FRB meeting was over. The S&P 500 was little changed on the day. The Russell 2000 gained 1.5% on the day, however.
Thursday
Investor sentiment was buoyant on Thursday as markets rose. They did so on news that US GDP rose 6.5% for the second quarter. That gives us two consecutive quarters with GDP in excess of 6%! Additionally, new jobless claims fell to 400K.
Friday
Markets gave back the gains from Thursday and ended lower on the week. The S&P 500 lost appx .3% for the week on news that inflation pressures are persisting.
Conclusion
The rise in GDP and inflation creates a recipe (at the surface) of sooner than anticipated rate hikes from the FRB–a decision which would tamp down growth and subsequently, inflation. The FRB is acutely focused on the longevity associated with current inflation, which they view as temporary. Should it persist beyond the next several months, we may see rate increases sooner than desired.
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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.