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 fell hard for the week. Omicron rose as a threat, but was that really the big news of the week?
Monday
Markets opened the week mildly lower. The S&P 500 fell 0.32% on the day. Federal Reserve Board Chair Powell was renominated for his seat. The lack of a reaction from equity markets is a result of the known behavior he represents. Bond markets actually reacted adversely as he represents a dovish stance. This means there are concerns that he may wait too long to take necessary actions.
Tuesday
The S&P gained back some of the losses from Monday as it advanced 0.16%. Manufacturing data rolled in better than expected; however, services data (the crux of our economy) softened.
Wednesday
On Thanksgiving eve, markets managed to rise as the S&P 500 closed above 4,700. The S&P 500 gained 0.22%. The major news was that initial jobless claims fell to 199K. This marks the first time that this statistic has fallen below pre-pandemic levels!
Thursday
Happy Turkey Day!
Friday
Omicron gripped markets around the world on Friday. As there is little certainty surrounding the new variant, the unknown drove trading. Recovery stocks suffered, while stay at home stocks caught a bid. With the Thanksgiving holiday causing light trade, volatility was exacerbated, and the S&P 500 shed 2.27%!
Conclusion
Most will see the actions of Friday as the big news, however, the renomination of Powell may prove more impactful. Little is known about Omicron to understand its full implications. The renomination of Powell provides certainty that we will likely continue on the path of tapering. That path maybe accelerated as result of persistent inflation. This also means a continued path towards rate hikes in early 2023. Those hikes may also be accelerated to fall 2022 as a result of persistent inflation. These changes represent adjustments to outlooks, rather than wholesale changes to investment strategies.
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