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 on the rise last week, but so were initial jobless claims. What does his mean to re-opening efforts?
Monday
Markets climbed nicely to open the week. ISM Non-manufacturing (Services) data released a strong reading at 63.7 (Mar). As a reminder over 50 signals expansion and under 50 signals contraction. This is by far the highest reading since the start of the pandemic. Non-Manufacturing is a major reading as approximately 84% of our economy is built on services.
Tuesday
The S&P 500 was minimally changed on Tuesday as available jobs increased sharply. This is a signal of continued re-opening momentum. We are currently in a ‘good news is bad’ cycle as concerns over inflation persist. The more it appears things are going well the more market softness we seem to be getting.
Wednesday
Crude oil inventories fell more than twice the expected amount; however, OPEC supply hikes are expected. Energy prices were negative, but minimally changed. The S&P 500 changed minimally as well, but to the contrary rose for the day.
Thursday
Markets climbed on Thursday as jobless claims rose. The softer trend in jobs led to NASDAQ leadership and interest rates softening. Energy lost value as natural gas storage increased. The increase was less than expected so it should carry a bullish trend ahead.
Friday
Leading into the weekend, markets gave us a buy signal. The S&P 500 rose .76% with most of the gains coming in the last hour of trading. This trend signals no fear in the weekend headline cycle and a buy mentality from investors.
Conclusion
The week carried many bullish signals. The IMF is projecting a 6.4% growth rate for the US in 2021. Service industries showed strength with a 63.7 rating. Oil prices moderated reducing the risk to headline inflation (in the short term). Yet a troubling signal persisted with the initial jobless claims rate increasing for the third straight week. During a time where states are beginning their re-opening process, the expectation is for this statistic to start to moderate. Should this be concerning? No. Most states have not executed their re-opening as of yet. One of the largest states by population, California, is targeting mid-June for their re-opening process. Delays in re-opening just help keep inflation expectations in check at this point.
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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.