|AUTHOR: Jason J. Roque, CFP®, APMA® TITLE: Investment Adviser Rep – CCO TAGS: S&P 500|
Jobs data missed expectations in April, but earnings did not disappoint! What drove markets last week?
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.
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.
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.
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%.
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.
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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