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 flashed a recession signal last week. Is the party over or do we still have room to grow?
Monday S&P 500 0.71% | NASDAQ 1.31%
The markets started the day and week in the green, but quickly faded as the 5-year and 30-year yields inverted. This means you could get more interest from a 5-year bond than a 30-year bond. This leads to fears of a recession. The key rate that would forward project a recession is the 2-year vs the 10-year (foreshadow). Markets bounced back late to end in the green as investor sentiment continues to support market valuations.
Tuesday S&P 500 1.23% | NASDAQ 1.84%
Markets rose, but it was in spite of some poor performance out of key categories. The Energy complex struggled as the shutdown of Shanghai, due to COVID testing, is taking a toll on demand. Optimism over a stock split in TSLA strengthened sentiment late in the day.
Wednesday S&P 500 0.63% | NASDAQ 1.21%
Russian demand for energy payments in rubles caused concern as sanctions have attempted to force a reduction of ruble use. Additionally, a classic signal for a future recession (6 to 24 months out) triggered. The 2-year vs the 10-year treasury rates inverted. The meaning can be seen that rate of growth beyond 2 years will be lower than current growth rates.
Thursday S&P 500 1.57% | NASDAQ 1.54%
Oil prices slid as another round of Ukraine/Russia talks gets underway. The US also announced a release of 1M barrels of oil per day from strategic reserves. Initial jobless claims rose last week and was an ominous foreshadowing of tomorrow’s job report.
Friday S&P 500 0.34% | NASDAQ 0.29%
Jobs Friday! Job data impressed as the unemployment rate fell to 3.6% and 431K nonfarm payrolls were added in March. The all-important participation rate moved a notch higher to 62.4%. So why didn’t the markets soar? The strength of the job market means the FRB is more likely to do a 0.50% rate hike in May. This pushed the 2-year yield over the 10-year yield again. As a classic sign of a coming recession (within the next 2 years) markets took the signal hard.
Conclusion S&P 500 0.06% | NASDAQ 0.65%
Though the intra-week volatility was elevated, markets ended the week slightly unchanged. The Nasdaq edged higher than the S&P 500 as bonds flashed a classic recession signal for the future. Inversion of the yield curve happens more than just leading into a recession; however, it precedes every recession. The last two times it has happened, the S&P 500 has grown pretty substantially for the 12 months. So, even if the signal is right, the party is not quite over. Think of it as last call…
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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.