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 ended the week slightly down from the last. Rates were in focus, but should they be?
Monday
Markets were in the red most of the day only to surge into the green in the closing minutes. Monday was light on economic data, but this week will have plenty for investors to focus on. Retail sales report on Tuesday, the Federal Reserve Board (FRB) meeting ends Wednesday, and Friday will be busy for derivatives.
Tuesday
The movement for markets was mild on Tuesday, but still in the red. The FRB kicked off their two-day meeting. This is a hotly awaited meeting as investors eagerly await the FRB’s response to the recent rise in rates. If they respond with an operation twist it will be viewed as yield curve control. As the long end of the curve rises, we create gap to the next recession. This is because we increase the travel required to a yield curve inversion.
Wednesday
Markets ran in red most of the day. At 2PM that all changed. The FRB meeting adjourned with no change in rates as expected. The dot plot (individual member polling for future rate hikes) pointed to an increasing acceptance of rate hikes in 2023. This willingness to accept the reality of the recent rate surge helped markets push ahead.
Thursday
Everything reversed course on Thursday. While the FRB reaction yesterday was welcomed, Thursday the focus was on higher rates likely not fading. The 10-year treasury was above 1.75% for the first time since before the pandemic.
Friday
Markets were fairly range bound on Friday. What was poised to be an active day in the derivative markets proved to be a mundane end to the week. Markets ended the day moderately lower.
Conclusion
In all The S&P 500 ended the week lower. Driven by a rise in the 10-year treasury rate, ending the week at 1.74%. A high enough level to cause concern (specifically for the speed by which we got there). However, this is a low enough level that monetary conditions are viewed as extremely loose. Pre-pandemic, the lowest level the 10-year treasury had ever reached was 1.37%. With it merely .37% higher, there is reason to ask if too much is being made of the recent rise.
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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.