The July Jobs Report released last Friday morning was a blowout – the U.S. Department of Labor reported the economy added 528,000 jobs last month – more than double the 250,000 number expected by the financial markets. Also better-than-expected, the unemployment rate improved a notch, to 3.5 percent – so there is currently NO recession in the job market. Ultimately, a strong and healthy economy needs jobs, and more jobs is of course good news!
In the stock market world (and in a short-term perspective) however, sometimes goods news is bad news. The major stock market averages initially traded lower following the jobs report. The rationale is that strength in the labor market will provide a clear path for the Federal Reserve to act more aggressively in raising interest rates to fight inflation. Probabilities are now 68% (up from 28% a week ago), that the Fed will increase interest rates ¾ point in September, instead of the ½ point previously expected – according to the CME FedWatch Tool. Higher interest rates slow the economy, which is the bad news for the stock market. By the end of the day however, the major stock market averages rebounded to finish little changed.
For the week, the benchmark Standard & Poor’s 500 Index increased .4%, its third consecutive weekly gain – the Dow Jones Industrial Average dipped .1% to 32,803 – while the tech-heavy NASDAQ added 2.2% to 12,658. Looking to the week ahead, we’ll get a couple important data points on inflation, with the release of July Consumer Price Index and July Producer Price Index, along with another batch of earnings reports from companies including Coinbase Global, Sysco, Ralph Lauren, Jack in the Box, Wendy’s, Cardinal Health, Hanesbrands, and Walt Disney.
So far, the weather this earnings season has been better-than-feared. For the second quarter of 2022, with 87% of S&P 500 companies reporting actual results, 75% have reported a positive Earnings Per Share surprise (which is below the 5-year average of 77%), and 70% have reported a positive revenue surprise (which is above the 5-year average of 69%) – according to data from FactSet Research.
As always, please reach out to us with any questions you may have or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC