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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Another down week led by the NASDAQ. Are there signs of hope in the long term forecast though?
Monday S&P 500 0.57% | NASDAQ 1.63%
Equity markets were in no mood to be boring on Monday. The markets opened choppy, oscillating between green and red. At one point, the 10-year treasury got above 3%, sending equity markets decidedly lower. At another point, the S&P 500 was 1.67% lower on the day. Late in the day, with one hour of trading left, markets rallied back to end in the green.
Tuesday S&P 500 0.48% | NASDAQ 0.22%
The growth story stayed relatively contained on Tuesday as the Federal Reserve Board (FRB) press conference is on Wednesday. Every time the markets tried to break out, they clawed back down. The 10-year treasury rate floated lower early and closed nearly unchanged.
Wednesday S&P 500 2.99% | NASDAQ 3.19%
The FRB delivered what the markets were expecting. They lifted the Fed Funds Rate by 0.50% and committed to rolling off their balance sheet starting June 1st. The commitment will eventually get to $95B, however that won’t be until September. The S&P 500 traded sideways until the data from the FRB was available, after which markets soared into the close. The 10-year treasury was little changed, indicating that the FRB hike was baked in already.
Thursday S&P 500 3.56% | NASDAQ 4.99%
The entire week of positivity was reversed in one broad selloff. The S&P 500 is currently off 13.54% and the Tech heavy NASDAQ is currently off 22.20%. The broad market move says that while the FRB was less fierce than expected, they are being aggressive with policy. That aspect does not change the expected decrease in revenue for US companies.
Friday S&P 500 0.62% | NASDAQ 1.45%
Happy Jobs Day! Jobs data held strong as the unemployment rate remained at 3.6% and the US added over 400K jobs in April. The participation rate is holding at 62.2%. Additionally, wage growth increased 5.5% annually. This rate keeps pace with Core PCE (a key indication of inflation). This could reflect a stickier inflation environment. Markets reacted negatively to the good news. It signals more room for the FRB to raise rates without having to worry about the job market.
Conclusion S&P 500 0.21% | NASDAQ 1.54%
The FRB is working to provide enough restriction to quell inflation, but not enough to cause a recession. The last time that effectively occurred was in 1994. The FRB aggressively rose rates to keep inflation at bay. If the FRB could successfully achieve a ’soft landing’, the follow-on story to the early ‘90’s was great. That five-year period of growth in the late ‘90’s has been unrivaled. It is still to be seen if the FRB can achieve that soft landing. If they do, they may set the table for a growth heavy period for the next few years.
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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.