The Week In Review

7/7/17

Investors rallied around the Employment Situation Report for June on Friday to finish the abbreviated week on a positive note. The Nasdaq led the advance, moving higher by 1.0%, while the S&P 500 and the Dow settled with gains of 0.6% and 0.4%, respectively. All three major averages finished the week modestly higher with the S&P 500 advancing by 0.1%.

The Employment Situation Report for June was well received by the market as it emphasized the economy's modest growth rate with a solid nonfarm payrolls reading (222,000 actual vs 173,000 Briefing.com consensus) while at the same time tempering inflation concerns with a lower than expected average hourly earnings reading (+0.2% actual vs +0.3% Briefing.com consensus). In other words, it was another 'Goldilocks' report that should give the Fed some cause for pause when considering the timing of the next rate hike.

Following the jobs report, the CME FedWatch Tool is still pointing to the December FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 59.1%, down ever so slightly from yesterday's 60.0%.

The S&P 500 opened Friday's session with a modest gain and continued climbing throughout the morning, eventually settling near its session high. Eight of eleven sectors settled in the green, but none with a greater gain than the top-weighted technology sector (+1.3%), which outperformed from start to finish. The influential financial sector (+0.6%) got off to a slow start, but eventually moved in line with the broader market.

Transports underpinned the industrial sector (+0.8%), sending the Dow Jones Transportation Average (+1.2%) to a new all-time high. The consumer discretionary sector (+0.8%) also outperformed, benefiting from broad strength. The remaining advancers finished with gains ranging from 0.1% (utilities) to 0.7% (real estate).

On the downside, three groups--telecom services (-0.4%), energy (-0.1%), and consumer staples (-0.1%)--finished in the red. Crude oil weighed on the energy sector, dropping 2.9% to $44.25/bbl, following Thursday's EIA inventory report, which showed a rise in U.S. production alongside a surprisingly large drop in crude and gasoline stockpiles.

U.S. Treasuries moved lower in a curve-steepening trade on Friday, increasing the 2yr-10yr spread by one basis point. The benchmark 10-yr yield climbed two basis points to 2.39%, extending its weekly advance to nine basis points.

It's also worth pointing out that U.S. President Donald Trump and Russian President Vladimir Putin reached an agreement on a ceasefire in western Syria in their first face-to-face meeting since Mr. Trump's victory in the 2016 presidential election.

Taking another look at Friday's economic data, which was limited to the Employment Situation Report for June:

May nonfarm payrolls hit 222,000 while the Briefing.com consensus expected a reading of 173,000. The prior month's reading was revised to 152,000 from 138,000. Nonfarm private payrolls added 187,000 while the Briefing.com consensus expected an increase of 175,000. The previous month's reading was revised to 159,000 from 147,000.

The unemployment rate rose to 4.4% (Briefing.com consensus 4.3%). Average hourly earnings increased 0.2% (Briefing.com consensus +0.3%), while the previous month's reading was revised to +0.1% (from +0.2%). The average workweek was reported at 34.5, which is slightly higher than the Briefing.com consensus of 34.4. The previous month's reading was left unrevised at 34.4.

The labor force participation rate increased to 62.8% in June from 62.7% in May.

The key takeaway from the report is that the weak year-over-year growth in average hourly earnings (2.5%) is apt to give the Fed some cause for pause when considering the timing of its next rate hike.

On Monday, investors will receive May Consumer Credit (Briefing.com consensus $12.7 billion) at 15:00 ET.

Nasdaq Composite +14.3% YTD

S&P 500 +8.3% YTD

Dow Jones Industrial Average +8.4% YTD

Russell 2000 +4.3% YTD

Week In Review: Equities Eke Out Slim Gains in an Abbreviated Week

Equity indices kicked off the third quarter on a positive note, finishing the first week of July with modest gains. Trading volume was light as many investors took some extra time off to celebrate the Fourth of July holiday. The S&P 500 added 0.1% while the Nasdaq and the Dow finished with gains of 0.2% and 0.3%, respectively.

The major averages settled mixed in an abbreviated session on Monday. The financials and energy sectors were bullish, finishing at the top of the day's leaderboard, and helped the S&P 500 overcome the top-weighted technology sector's third-consecutive loss. The tech-heavy Nasdaq wasn't so lucky, dropping 0.5%, while the Dow outperformed, hitting a new intraday record high.

U.S. markets were closed on Tuesday in observance of the Fourth of July holiday, but the benchmark index picked up where it left off in the midweek session, registering another modest win with the technology group leading the charge. The minutes from the June 13-14 FOMC meeting were released on Wednesday, but did little to change the market's rate-hike expectations.

In the minutes, Fed members seemed generally upbeat about economic activity and gave the impression that they believe the recent softness in inflation is transitory. In addition, Fed officials were divided on when to start unwinding the Fed's balance sheet; some wanted to start in a couple of months while others preferred to hold off until the end of the year.

Investors pulled back on Thursday, dragging all three major averages into negative territory for the week and leaving the S&P 500 below its 50-day simple moving average for the first time in nearly two months. The market expressed concerns about less accommodative central bankers, evidenced by rising interest rates around the globe. U.S. Treasuries moved in a curve-steepening trade, helping to keep the influential financial sector ahead of the broader market.

The Employment Situation Report for the month of June, which showed the addition of 222,000 nonfarm payrolls (Briefing.com consensus 173,000) and stable hourly earnings (+0.2% vs Briefing.com consensus +0.3%), was the focus of Friday's session. The report was largely seen as another 'Goldilocks' report, pointing to an economy that is growing at a modest rate without the worry of inflation.

Eight of the S&P 500's eleven sectors ended Friday in the green, which was just enough to bring the benchmark index back into positive territory for the week. The technology group was the top-performing sector, benefiting from broad strength. However, the energy group underperformed as crude oil weighed, dropping 2.9%.

WTI crude futures struggled this week, dropping 4.1%, following news that OPEC exports increased in the month of June and headlines that Russia is not in favor of deepening the current OPEC-led production cut agreement. In addition, the weekly inventory report from the Department of Energy, which showed a rise in U.S. production alongside a larger than expected drop in crude and gasoline stockpiles, also prompted selling pressure.

The fed funds futures market still points to the December FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 59.1%, up from last week's 54.4%.