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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Jobs data missed expectations in April, but earnings did not disappoint! What drove markets last week?
Monday
Markets opened the week (and month) in the green. The S&P 500 led the way, up 0.25%, while the NASDAQ shed about 0.5%. This deviation is a continuation of the re-opening trade that has been playing out over the last 6 months.
Tuesday
There was a sharp reversal of fortunes on Tuesday as the markets dove in a way we had not seen since March. Former Federal Reserve Board (FRB) Chair, Janet Yellen indicated that monetary policy may tighten sooner than the FRB is saying. She later indicated (after market close) she in no way was trying to postulate on the direction of the FRB.
Wednesday
As a result of former FRB Chair Yellen’s retraction, markets surged at the open. This momentum faded as the day wore on. The S&P 500 ended up gaining 0.07%, while the NASDAQ fell 0.37%. The NASDAQ led the losses on Tuesday, so this further extends the re-opening trade at play.
Thursday
As a prelude to the jobs report, markets celebrated the lowest initial unemployment number since the start of the pandemic. The figure fell to 498K. For perspective, pre-pandemic, the figure was frequently around 200K. The S&P 500 gained 0.8% on the day, with the NASDAQ rising by 0.4%.
Friday
The monthly unemployment report was in focus on Friday. It was an abject disappointment. Unemployment rose to 6.1% from 6.0% and nonfarm payroll employment rose 266K. Expectations were for the unemployment rate to fall to 5.8% and payrolls to add 1M! While new hirers disappointed, the participation rate increased, which left more unemployed workers to be counted. By that measure the increase in the unemployment rate is not as disappointing. It just means that more people are feeling optimistic about job prospects. Even with the disappointment around jobs the S&P 500 managed to add 0.7% on the day.
Conclusion
If there is one thing the jobs report reminded us of this past Friday, it is that recoveries are uneven. The S&P 500 added 1.5% on the week. Earnings season has been robust with growth near 50% YoY and 86% of companies beating expectations. The miss on employment was actually viewed as a net positive. The FRB may not take the punch bowl away too soon as expected. Also, perhaps inflation concerns were overblown. More likely than not, it is an example of how non-linear life can be. We will likely see a lift in new hirers in coming months offsetting April’s ‘disappointment’.
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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.