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 moved lower last week, again. Is volatility telling us anything about what to expect for the next month?
Monday
We experienced a very modest day of movement on Monday. A welcomed change from the headline risk that has been accompanied with every weekend as of late. The S&P 500 lost 10 points or 0.24%.
Tuesday
Volatility picked back up on Tuesday. The implications from sanctions on Russia posed a difficult pill for markets to swallow. Early, the S&P 500 fell more than the NASDAQ as markets were pricing in a less hawkish Federal Reserve Board (FRB). The S&P 500 ended up falling 1.63%, while the NASDAQ lost 1.69%.
Wednesday
A full reversal was in order Wednesday. The S&P 500 recovered all the losses from Tuesday as it rose 1.80%. NASDAQ lagged, as has been the standard as of late, rising 1.62%. The FRB chair, Jerome Powell, testified before congress on Wednesday. During which he made it clear that a 0.25% rate hike is more likely for an opening move, not 0.50%. This was cheered by markets as a less hawkish stance than expected in recent weeks. At the same time, he also stated that consecutive hikes should be seen as normal. It felt as though the FRB chair was trying to send a message to expect that later this year.
Thursday
Markets rose on Thursday. The S&P 500 rose 1.33% on the day while the NASDAQ lagged, rising 0.04%. This is a signal that strong jobs data is expected for tomorrow. Strong data would increase the hawkishness of the FRB. This is because it would make it easier for the FRB to hike interest rates.
Friday
Happy Jobs Friday! Jobs data did not disappoint as the unemployment rate fell to 3.8% and 678K nonfarm jobs were added. The participation rate reached a pandemic high of 62.3. This is a signal that more workers are optimistic about their job prospects. The strong jobs showing is a signal that the FRB will be more concerned with inflation in their coming meeting. This makes a rate hike all but a certainty for March. With all that good news, we were rewarded with a down market. The tension in Ukraine after a standoff at a nuclear power plant was a bit much for markets to handle. Additionally, the fears of a rate hike’s impact on earnings took a toll on stock prices. The S&P 500 ended up falling 0.79% on the day. The NASDAQ sold off 1.66%.
Conclusion
The week was not great for markets as the S&P 500 lost 1.27% and the NASDAQ lost 2.78%. VIX started the year at 16.60 and has climbed as high as 33.32, which was this past Tuesday. Market volatility over the next month is now expected to be around 1.6% daily. That volatility could be reflected in gains or losses but given geo-political risks at play the latter is likely.
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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.