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 rose last week, and optimism was a bound early in the week. Was it misguided?
Monday S&P 500 2.59% | NASDAQ 2.27%
Markets opened the week in stark contrast to how they ended last week (and month). The sad part was that the move higher for equities came on signals that the US economy weakened. It was a move that signaled an expectation of a less hawkish Federal Reserve Bank (FRB). As of late, rallies of this type have been very short lived.
Tuesday S&P 500 3.06% | NASDAQ 3.34%
The rally continued for a second day. The strength of these increases is concerning as a reversal day would likely be just as deep. The moves to the north are happening under a false hope of a pivot from the FRB. This came as the Royal Bank of Australia delivered a smaller increase than expected. Additionally, after the UK removed a tax cut for the wealthy, interest rates began to retreat. This reaction was merely a reversal on the rate increases after the policy was announced a week ago. The FRB very plainly told markets on 8/26 not to expect a pivot until inflation has been beaten. With inflation siting above 8%, it seems unlikely to consider that beaten. This rally will likely be short lived.
Wednesday S&P 500 0.20% | NASDAQ 0.25%
The shine on the two-day rally came off a little on Wednesday. 10-year yields bounced back up and equities opened deep in the red. The good news is that throughout the day, equities managed to claw all the way back to even.
Thursday S&P 500 1.02% | NASDAQ 0.68%
Equities turned lower on Thursday as FRB governors are echoing the hawkish stance of the Bank. Additionally, initial jobless claims rose, however, it was a slight increase. 219K job losses is a pace that signals a strong job market. The number will likely increase to 300K or higher in a recession.
Friday S&P 500 2.80% | NASDAQ 3.80%
Happy Jobs Friday! Markets tumbled to close out the week. The jobs data was strong as the unemployment rate crept down to 3.5% on 263,000 non-farm payroll additions. The FRB is looking for the rate to increase and for job adds to slow closer to break even. Inflation will likely continue to be an issue awhile unemployment remains below 4% to 4.5%.
Conclusion S&P 500 3.01% | NASDAQ 0.73%
Equity markets rose for the week. Something that has been rare as of late. The rise, however, is seeming short lived as it was mainly from the first two trading days of the week. The rest of the days represented a claw back of those gains. The reason for gains was that if we get a recession, the FRB will pivot strategy to stabilize the economy. There has been zero indication from a very transparent FRB that this would be the case. There is historical precedent to say the market is right, however, all of those precedents came during low inflationary periods. At this point, rather than looking for a pivot, markets should accept a stabilization of rates is most likely. This would be the case until we see substantial damage to the employment market. At which time, the FRB would likely pivot as enough damage would have been done to inflation.
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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.