The Week In Review

8/5/16

The stock market ended the week on a higher note as a positive reading of the Employment Situation Report for July helped the Nasdaq Composite (+1.1%) and the S&P 500 (+0.9%) notch new all-time closing highs. The upbeat employment report elicited buying interest while diminishing on-going concerns regarding the strength of the U.S. labor market. Other factors impacting today's trade included weakness from the oil pit, continued strength in the dollar, and sector leadership from the heavily-weighted financial (+1.9%), technology (+1.2%), and consumer discretionary (+1.1%) sectors. The tech-heavy Nasdaq (+1.1%) finished ahead of the Dow Jones Industrial Average (+1.0%) and the S&P 500 (+0.9%).

Today's session began on a higher note as a better-than-expected reading of the Employment Situation Report for July helped reduce concerns regarding the hiring landscape. The report showed that nonfarm payrolls (255K; Briefing.com consensus 185K) and nonfarm private payrolls (217k; Briefing.com consensus 171k) each came in stronger-than-expected despite the impressive rebound in the June report. Furthermore, average hourly earnings (+0.3%; Briefing.com consensus +0.2%) also came in better-than-expected, which could pave the way to an increase in inflation expectations.

The positive employment report brought forward rate hike expectations, but the fed funds futures market still does not believe that a rate hike will happen before the end of 2016. The fed funds futures market currently estimates the odds of a rate hike at the December meeting at 46.5%, rising from yesterday's implied probability of 32.1%. The dollar strengthened in response while gold fell and the economically-sensitive financial sector (+1.9%) led today's rally.

Equity indices extended their advance through the session, shrugging off potential headwinds from a strengthening dollar and weakness in oil futures. The benchmark index hovered in the area of its record high for most of the session, notching a new all-time intraday high (2182.86) in the final hour. The S&P 500 (+0.9%) finished near its best level of the day as eight sectors ended in the green. The heavyweight financial (+1.9%), technology (+1.2%), and consumer discretionary (+1.1%) sectors outperformed while defensively-oriented telecom services (-0.2%) and utilities (-1.4%) ended in the red.

The financial sector (+1.9%) demonstrated broad-based strength as money center banks, investment brokerages, and life insurance names each outperformed. JPMorgan Chase (JPM 66.30, +1.74) and Citigroup (C 45.72, +1.88) finished higher by 2.7% and 4.3%, respectively. Separately, MetLife (MET 41.14, +1.60) finished the day higher by 4.1%, rebounding from yesterday's 8.7% decline. The economically-sensitive group finished the week higher by 1.4%, erasing its year-to-date loss.

The influential technology sector (+1.2%) finished ahead of the broader market as top-weighted Apple (AAPL 107.48, +1.61) gained 1.5%. The stock extended its recent rally, jumping 11.2% since reporting above-consensus bottom-line results on July 26. The high-beta chipmakers also outperformed, evidenced by the 1.3% gain in the PHLX Semiconductor Index. The price-weighted index erased a modest weekly loss to finish the week higher by 0.9%.

The Dow Jones Transportation Average (+1.9%) outperformed amid strength in rail names and airlines. The U.S. Global Jets ETF (JETS 22.32, +0.52) finished the day higher by 2.4%, trimming its weekly loss to 0.9%. Separately, railroads settled higher as Canadian Pacific (CP 144.04, +0.86) rebounded 0.6%. The name was under pressure yesterday after announcing a 9.8 million share public offering on behalf of Pershing Square.

The countercyclical health care sector (+0.3%) ended the day on a flat note as Bristol-Myers (BMY 63.28, -12.04) underperformed. The company announced that its lung-cancer treatment, Opdivo, failed to meet its primary endpoints. On the flipside, Dow component Merck (MRK 63.86, +6.02) topped the price-weighted index as investors looked to diminishing competition for its Keytruda drug.

The U.S. Dollar Index (96.24, +0.48) ended off its best level of the day, but the greenback still finished with gains against the pound, yen, and euro. Cable ended lower by 0.3% (1.3070) while the single currency declined 0.4% against the buck (1.1085). Separately, the dollar gained 0.5% against the safe-haven yen (101.76).

Treasuries ended the day on a lower note as yield rose across the curve. The yield on the 10-yr note settled higher by eight basis points, rising to 1.59%.

Participation was in-line with the recent average as more than 842 million shares changed hands at the NYSE floor.

Today's economic data included the Employment Situation Report for July, the June Trade Balance, and June Consumer Credit:

Nonfarm payrolls increased by 255,000 (Briefing.com consensus 185,000). Over the past three months, job gains have averaged 190,000 per month.

June nonfarm payrolls revised to 292,000 from 287,000

May nonfarm payrolls revised to 24,000 from 11,000

Private sector payrolls increased by 217,000 (Briefing.com consensus 171,000)

June private sector payrolls revised to 259,000 from 265,000

May private sector payrolls revised to -1,000 from-6,000

Unemployment rate was 4.9% (Briefing.com consensus 4.8%) versus 4.9% in June

Persons unemployed for 27 weeks or more accounted for 26.6% of the unemployed versus 25.8% in June

July average hourly earnings were up 0.3% (Briefing.com consensus 0.2%) after being up 0.1% in June

Over the last 12 months, average hourly earnings have risen 2.6%

The average workweek was 34.5 hours (Briefing.com consensus 34.4) versus 34.4 hours in June

July manufacturing workweek was unchanged at 40.7 hours

Factory overtime was up 0.1 to 3.3 hours

The labor force participation rate was 62.8% versus 62.7% in June

The trade deficit in June widened to $44.5 billion (Briefing.com consensus -$42.7 billion) from -$41.0 billion in May.

The widening was a byproduct of imports increasing by $4.2 billion month-over-month to $227.7 billion and exports increasing by only $0.6 billion month-over-month to $183.2 billion.

There was a $2.30 billion jump in imports of industrial supplies and materials, more than half of which was owed to imports of crude oil (+$1.43 billion), petroleum products (+$0.44 billion), and fuel oil (+$0.29 billion).

Capital goods imports, excluding automotive, were up $1.0 billion, with civilian aircraft (+$0.7 billion) accounting for much of that increase.

Imports of consumer goods increased $1.9 billion, paced by a robust $1.4 billion increase in pharmaceutical preparations and a $1.1 billion increase in cell phones and other household goods.

The export side of the equation featured a $0.6 billion increase in foods, feed, and beverages, a $0.4 billion increase in consumer goods, and a $0.3 billion increase in capital goods, excluding automotive, which was offset in part by a $0.4 billion decline in exports of autos, parts, and engines.

On a year-over-year basis, imports are down 2.4% while exports are down 3.8%.

Total outstanding consumer credit increased by $12.3 billion in June after increasing a downwardly revised $18.0 billion (from $18.6 billion) in May. The Briefing.com consensus estimate for June was $16.2 billion.

In the preceding 12-month period leading up to June, consumer credit had risen by an average of $17.7 billion.

The growth in June was driven by a $7.7 billion increase in revolving credit, which rose to $960.8 billion, and a $4.6 billion increase in nonrevolving credit to $2673.1 billion.

In June, consumer credit increased at an annual rate of 4.0%. For the second quarter, consumer credit increased at a seasonally adjusted annual rate of 5.25%.

There is no economic data of note scheduled to be released on Monday.