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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It was a pummeling this last week on the markets. Interest rates fell and markets did as well, will it continue?
Monday
Novavax announced efficacy data that shows over a 90% rate. Had this been released in November it would have contributed to a market rally. In a ‘good news is bad news’ environment; markets were down most of Monday. They climbed in the last few minutes of trading to end the day in the green.
Tuesday
Inflation indicators signaled more on the horizon. Additionally, retail sales came in weak. In a shift in mentality, this data although bad news, actually caused a negative day on the markets.
Wednesday
Markets fell on Wednesday as the Federal Reserve Bank (FRB) showed indication that rates may raise sooner than previously announced. It wasn’t a dramatic shift as they are still likely on hold until 2023. This created tension in markets as higher rates spell lower profits for corporations.
Thursday
The S&P 500 was steady after a volatile Wednesday. This was surprising as initial jobless claims rose for the first time since the beginning of April. This sign does not bode well for re-opening. Markets however are enjoying that data. So much of re-opening has been priced in that slower opening data has actually been welcomed.
Friday
Markets tumbled on Friday heading into the weekend. This seemed to be a continuation of the negative tone all week. Mainly spurred on by the more hawkish tone of he FRB.
Conclusion
The S&P 500 lost 1.91% across the week. The adjustment that the FRB made to their forecast, while large, was expected. Likely the concern is that no one expected it as of yet. The next major checkpoint to watch for the FRB would be their annual meeting in Jackson hole (August).
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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.