July Payrolls Deliver a Gold Medal Performance

The major market indices finished the week higher after job growth surged for a second straight month. The strong payroll data renewed confidence that the US economy is moving in the right direction.

August 08, 2016

Performance for Week Ending 8/5/2016:

The Dow Jones Industrial Average (Dow) gained 0.60%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 0.38%, the Standard & Poor’s 500 Index (S&P 500) finished up 0.43% and the Nasdaq Composite Index (NASDAQ) tacked on 1.14%. Sector performance was mixed with 6 of the S&P sector groups finishing lower and 4 finishing higher. The Technology sector (+1.63%) was the best performer while Utilities (-2.68%) was the worst.

Index* Closing Price 8/5/2016 Percentage Change for Week Ending 8/5/2016 Year-to-Date Percentage Change Through 8/5/2016
Dow 18543.53 +0.60% +6.42%
Wilshire 5000 22634.55 +0.38% +6.93%
S&P 500 2182.87 +0.43% +6.80%
NASDAQ 5221.12 +1.14% +4.27%

*See below for Index Definitions

MARKET OBSERVATIONS: 8/1/16 – 8/5/16

The major market indices finished the week higher after job growth surged for a second straight month. The strong payroll data renewed confidence that the US economy is moving in the right direction. According to the Atlanta Fed GDPNow model, the economy is expected to expand by 3.8% during the current quarter, solidly above the 1.2% pace seen during Q2. Both the S&P 500 and Nasdaq Composite closed the week at new all-time record highs.

On Friday, the Labor Department reported that nonfarm payrolls (NFPs) rose by 255K, well ahead of the 180K forecast. The prior two months NFPs were also revised higher, resulting in an additional 18K jobs. Nonfarm payrolls have now averaged a solid 186K per month on a year-to-date basis. The unemployment rate came in at 4.9%, unchanged from last month and a touch higher than the 4.8% forecast. Wages rose 0.3% month over month and are up 2.6% on a year over year basis.

Following the payroll report, rate hike probabilities increased modestly, with the September probability now at 26% and the December odds at just over 46%. Despite the recent string of positive economic data, investors remain hesitant to discount higher near-term odds, likely reflecting the mindset that the Fed will be cautious and not want to risk roiling the financial markets ahead of the November election.

The key to developing higher clarity on the forward path of rates may be Fed Chair Yellen’s presentation at the Jackson Hole Summit on August 26. Investors will keep a close eye on her remarks as this forum has been used in the past to communicate policy initiatives. Yellen has been mostly “dovish” toward policy, so any change in tone would likely raise the probability of a rate hike by year-end. The situation however will be very tricky and Yellen will need to really thread the needle with her comments. With most global central banks in easing mode, an overly hawkish tone could send the US dollar soaring which in turn would put renewed pressure on oil prices, curb exports, and create a headwind for US multinational companies.

Looking forward, the path of least resistance for the domestic equity markets should continue to be skewed to the upside. While a pullback in stock prices in the near-term certainly cannot be ruled out, a correction in prices would be viewed as healthy as it would help relieve some of the current “froth” in the market and set the stage for a buying opportunity at better prices. From a macro standpoint, the US economy remains healthy, labor conditions continue to improve, the likelihood of a recession remains relatively low, earnings growth is set to accelerate in the coming quarters and interest rates policy is expected to remain supportive of risk assets.

Economic Round-up: Last week, the Institute for Supply Management reported that the ISM Manufacturing Index showed July factory activity expanding for a fifth straight month, albeit at a slightly slower pace. The reading of 52.6 (readings above 50 signal expansion) was below the June reading of 53.2 but at a level that is still associated with positive real GDP growth. The “guts” of the report were mixed but encouragingly the forward looking new orders component came in at a solid 56.9. The ISM also reported that the ISM Non-Manufacturing (Services) Index came in at 55.5 in July, down 1 point from the prior month. As was the case with the manufacturing index, the new orders component rose to 60.3, its highest level in nine months. Service oriented businesses account for almost 90% of the economy, so the uptick in new orders suggests further economic growth in the coming months.

The Week Ahead: Earnings season will continue to wind down as only 25 members of the S&P 500 are scheduled to report quarterly results during the week. On the data front, reports of interest include; second-quarter productivity, the June Job Openings and Labor Turnover Survey (JOLTS), July import and export prices, July retail sales, the July Producer Price Index (PPI), June business inventories and the University of Michigan consumer sentiment survey. No members of the Federal Reserve are scheduled to speak during the week.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.

Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.