Markets Finish Higher Following Strong Jobs Report
The major market indices finished the holiday shortened week moderately higher after a batch of solid US economic data offset Brexit related fears.
July 11, 2016
| By Mike Schwager
Performance for Week Ending 7/8/16:
The Dow Jones Industrial Average (Dow) gained 1.21%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 1.39%, the Standard & Poor’s 500 Index (S&P 500) finished up 1.48% and the Nasdaq Composite Index (NASDAQ) tacked on 2.36%. Sector breadth was positive with 8 of the 10 S&P sector groups finishing higher. The Consumer Discretionary (+3.18%) led the way higher followed by Healthcare (+2.58%) and Industrials (+2.12%).
||Closing Price 7/8/2016
||Percentage Change for Week Ending 7/8/2016
||Year-to-Date Percentage Change Through 7/8/2016
*See below for Index Definitions
MARKET OBSERVATIONS: 7/4/16 – 7/8/16
The major market indices finished the holiday shortened week moderately higher after a batch of solid US economic data offset Brexit related fears. This week’s gains helped push the S&P 500 back above pre-Brexit levels and left the index just below its all-time closing high.
Despite the snapback rally over the past few weeks, forward market action may prove tenuous over the course of the summer as investors continue to evaluate the impact of the Brexit vote, handicap the probability of Fed action during the remainder of the year, assess the impact of slowing global growth and monitor the US Presidential race.
While headline risk and elevated uncertainty may be near term headwinds to the financial markets, when the dust settles US markets may be viewed as a good buying opportunity. From a macro point of view, the US economy continues to grow, the likelihood of a recession remains relatively low, the Fed is likely to hold interest rates steady for the foreseeable future, and investor sentiment is extremely negative (a contrarian indicator). While a larger drawdown in stock prices during the summer months certainly cannot be ruled out, fear should eventually give way to fundamentals during the latter stages of the year.
Payrolls Rebound: On Friday, the Labor Department reported that nonfarm payrolls (NFP) rose by +287K during June, well ahead of the +180K forecast and a sharp reversal from the revised +11K additions during the prior month. The report, however, was not perfect as the unemployment rate rose to 4.9% (from 4.7%) and wage growth fell short of forecasts. Overall, the market takeaway was that the May report was an aberration and employment trends generally remain in good shape.
Economic data over the past couple weeks (ISM Manufacturing, ISM Services, Jobless Claims, etc.) suggest the economy entered into the summer on solid footing. Following the payroll report, rate hike probabilities increased modestly, although the likelihood of a rate hike by year-end still remains minimal.
The Week Ahead: Second-quarter earnings season will “officially” start during the upcoming week. Thirteen members of the S&P 500 are scheduled to release results including Dow-component JPMorgan Chase. The data calendar will be relatively busy. Reports of interest include; the Labor Department’s May Job Openings and Labor Turnover Survey (JOLTS), the June Producer Price Index (PPI), the June Consumer Price Index (CPI), June retail sales, the July Empire State manufacturing survey, June industrial production and capacity utilization, May business inventories and the University of Michigan’s preliminary July consumer sentiment survey. Also of note will be Wednesday’s release of the Federal Reserve’s periodic Beige Book report. Fed Heads will hit the speaker circuit in full force with seven officials scheduled to take the dais.
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.
Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”
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