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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Docile week as markets reflected marginal losses? No, not at all… What really happened throughout the week?
Monday
Markets dug a large hole to start the week but worked its way out by market close. The bleeding ended up being minor, with the S&P 500 losing 0.1%. The move came as major bank analysts continue to report a hawkish Federal Reserve Bank (FRB) for 2022. They are not only likely raising rates but attempting to reduce their balance sheet during the 4th quarter.
Tuesday
The S&P 500 rose 0.9% and the Nasdaq rose 1.4%. This came after an early drop in markets. The initial risk-off environment was fostered by testimony from FRB chair Powell in the morning. That testimony ultimately confirmed thoughts for investors that the trajectory for rates in coming months will be on the rise.
Wednesday
Consumer Price index (CPI) data out on Tuesday showed a 0.6% increase for the month of December. That monthly reading led to a 7.0% YoY reading. The S&P 500 rose 0.28%. While the YoY number rose, the monthly increase was down from the last two months.
Thursday
The day started in the green and faded hard into the red. The S&P 500 ended up losing 1.42% on the day. FRB officials spoke publicly on Thursday about the Banks intent to start raising rates as early as March. The FRB will do this often in an effort to telegraph their actions. By doing so, they prevent a much broader sell off at the time of the increase.
Friday
Markets floated just under water for the majority of the day. Retail sales missed expectations by a wide margin. Additionally, preliminary readings for consumer sentiment show the metric falling into the 60’s. Outside of the pandemic, we haven’t seen sentiment in the 60’s since 2011. Coincidently, that was the last time we saw inflation above 2%. The S&P ended up pulling into the green for the day ending at a 0.08% rise.
Conclusion
The S&P 500 did lose 0.3% for the week. This comes across as a fairly mild week when taken in total, however intra-week volatility absolutely told another story. The increase in recent volatility is not surprising given the interest rate forecasts for 2022; however, I should remind people that the docile nature of 2021 is not the norm.
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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.