The Week On Wall Street Stocks turned in a mixed performance last week as investors struggled with headlines suggesting that the Fed was unlikely to soon ease up on its current monetary tightening policy. The Dow Jones Industrial Average slipped 0.13%, while the Standard & Poor’s 500 rose 0.36%. The Nasdaq Composite index picked up 2.15% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 0.23%. Showing Resilience Ahead of Friday’s employment report, stocks were generally higher, highlighted by a Wednesday rally triggered by fresh earnings surprises and a better-than-expected economic report. The rally was especially notable because it occurred when multiple Fed officials said that the fight against inflation hadn’t ended, perhaps throwing cold water on the idea that the Fed might pivot due to weakening economic activity and the prospect of cooling inflation. Aside from this single day of enthusiasm, markets were a bit jittery, especially as investors monitored Speaker of the House Pelosi’s visit to Taiwan. A robust employment report on Friday reinforced the idea that the Fed would likely stay the course on monetary tightening, resulting in a mixed market for the week. Employment Report The U.S economy added 528,000 jobs in July, doubling the consensus expectation of 258,000. The unemployment rate ticked lower, falling from 3.6% to 3.5%. Coincident with this job creation was strong wage growth, as average hourly earnings rose 0.5% in July and 5.2% from a year ago. Leisure and hospitality, professional and business services, and healthcare lead the way in reported job gains, as seen in most sectors of the economy. Even sectors such as construction, particularly vulnerable to rising interest rates, saw job gains. The labor force participation rate moved slightly lower, slipping to 62.1%--its lowest level this year. This Week: Key Economic Data Wednesday: Consumer Price Index (CPI). Institute for Supply Management (ISM) Services Index. Factory Orders. Thursday: Jobless Claims. Producer Price Index (PPI). Friday: Consumer Sentiment. This Week: Notable Companies Reporting Earnings Monday: Dominion Energy, Inc. (D), Tyson Foods, Inc. (TSN). Tuesday: Emerson Electric Co. (EMR). Wednesday: The Walt Disney Company (DIS). Thursday: Illumina, Inc. (ILMN). Final Thoughts Stocks have mounted a healthy push up from the mid-June lows. Many merely see this as a bear market bounce and are calling for lower lows based on fears of recession and economic slowdown. Last Friday’s unemployment report was good. We’ll get word on Wednesday whether we have seen peak inflation for this cycle. We tend to think this is the case as commodity prices have been steadily rolling over since early July, but we will learn more Wednesday. The market is always looking ahead at what it thinks will happen. There are still a fair amount of “ifs,” but if inflation numbers begin to roll over then the Volcker era high interest rates many have feared probably won’t materialize. Around 70% of the companies reporting earnings in the S&P 500 have beaten top line earnings estimatesby a median of around 5%. That doesn’t sound like a deep recession to me. Maybe next year, but not now. Sentimentis still biased to the negative side which could mean if we get much more positive momentum then those folks have to start chasing a train that may be leaving the station. Add all of these up and we could see quarter that looks much different than the last two. The jury is still out and much will hinge on inflation data. The Senate also passed some major legislation this weekend. More on that next week, but initial impression is the Treasury needs money and they are arming the IRS to come knocking. Stay tuned… |
THIS WEEK'S UPDATE
