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 shed weight on inflation data last week, recovering ground late. What caused this swing?
Monday
Monday’s activity was very much still a reaction to the jobs report released the prior Friday. For most of the day markets floated near the highs only to shed value late. Focus shifted to potential supply constraints as a result of the colonial pipeline (CP) ransomware situation. With that shift in focus, the S&P 500 ended the day down 1%.
Tuesday
The S&P 500 shed another .87% on Tuesday. Job openings increased to 8.1M and the CP pipeline remained out of commission. That closure dominated momentum on the markets. Energy prices soared, but equities as a whole struggled.
Wednesday
Inflation data out Wednesday morning roiled the markets! Markets have been pricing in higher inflation as the re-opening trade has been under way for several months now. The repricing continued Wednesday. Core Consumer Prices (Inflation proxy) jumped from 1.6% in March to 3.0% in April. The strong reading raised concerns that we are about to undergo a wave of high inflation. The S&P 500 fell 2.14%, however the NASDAQ led the losses as 2.65%.
Thursday
Initial jobless claims fell to a pandemic low of 473K. This upbeat reading seemed to allow calmer heads to prevail on Thursday as markets staged a rebound.
Friday
In a move that was clearly ‘bad news is good news,’ weak retail sales allowed markets to close higher. The weaker reading encouraged investors that perhaps April’s inflation reading will not be the norm going forward.
Conclusion
There is much focus on inflation right now. Understandably so, supply lines are choked off, employees are hard to come by, and people are starting to get out and spend money. From the semiconductor shortages, a depleted rental fleet from a sell off during the pandemic, to lumber bottleneck. Every where you turn there is evidence of price hikes. All that said, the inflation concerns do not appear to be long term. As workers come back, supply constraints will improve, and these price increases will likely prove temporary. A sign of prices adapting to current circumstances rather than long term inflation increases.
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