THE WEEK ON WALL STREET
A strong, but not too strong, employment report sparked a rally on the final day of trading, propelling stocks to a modest gain for the week. The Dow Jones Industrial Average climbed by 0.66%, while the Standard & Poor’s 500 added 0.61%. The Nasdaq Composite index increased by 0.48%. The MSCI EAFE index, which tracks developed overseas stock markets, edged up 0.10%.
Markets have traded sideways since mid-April, though beneath the surface has been ongoing sector rotation. Last week continued that trend. While stocks ended on a strong note, the performance of industry sectors varied widely. Energy, real estate, utilities, and a number of reopening stocks performed well, while consumer discretionary, communication services, healthcare, and technology stocks lagged. The Fed announced on Wednesday that it will soon begin selling the corporate bonds and exchange-traded funds it had accumulated during the pandemic, an action that some observers interpreted as a harbinger of an approaching change in its easy-money policies. But the below-consensus May job figure on Friday buoyed investors who believe the Fed will not change course soon.
LABOR MARKET RECOVERY
It was a good week for the labor market. Initial jobless claims fell to pre-pandemic levels (385,000), ADP (Automated Data Processing) reported a big jump in private-sector hiring (978,000), and the monthly employment report saw nonfarm payrolls increase by 559,000 in May – a healthy increase even though it fell short of some expectations. The unemployment rate declined to 5.8% from April’s 6.1% level. Friday’s report showed that total employment numbers still remain about seven million jobs below their pre-pandemic levels. It also showed an acceleration in wage gains, which rose 2% year-over-year following the 0.4% gain in April.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Job Openings and Labor Turnover Survey (JOLTS).
Thursday: Consumer Price Index (CPI). Jobless Claims.
Friday: Consumer Sentiment.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Monday: Marvell Technology, Inc. (MRVL), Coupa Software (COUP).
Wednesday: Campbell Soup Company (CPB), Brown-Forman Corporation (BF.B).
Thursday: Chewy (CHWY).
The trend in the markets remains bullish, anchored in the steadfast Fed accommodative policy, a pent-up consumer demand, a return of workers back from public jobless benefits to full-time private work, and the concerted global settlement of supply lines. The moderate pace of economic growth is arguably sustainable past year-end 2021 and well into mid-year 2022 based on a consensus of most economists. Of course, markets will continue to react to headline news. The next thing you’ll start to hear from the news media is when the Fed will begin to taper monetary policy and raise interest rates. The Fed says not this year, but the talking heads love to second guess everyone.