weekly market commentary

Weekly Market Commentary – July 8, 2019

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The S&P 500 continued its very strong performance this year and reached a new high Wednesday before inching lower on Friday. The strong employment report on Friday pushed markets slightly lower by reducing the number of expected interest-rate cuts by the Federal Reserve. The S&P 500 climbed 1.7% for the week. The MSCI ACWI gained 1.2%. The Bloomberg BarCap Aggregate Bond Index slipped 0.1% as yield rose in response to the jobs data.

Key Points for the Week

  • U.S. jobs data exceeded expectations by a wide margin, and wage growth remains healthy.
  • The Fed is still expected to cut rates in July, but good economic data will likely reduce the number of cuts and their frequency.
  • The S&P 500 reached a new record.

employment data

U.S. Labor Market

Sometimes good news is bad news as investors are more interested in lower interest rates than a strong economy. On Friday, this perverse logic was expressed when the market dipped in response to a strong employment report. The U.S. economy is slowing but not as badly as many hoped or feared. If the economy isn’t as bad as expected, then the Fed won’t need to lower rates as many times.

The U.S. added 224,000 new jobs in June, beating expectations of 170,000 new jobs. The number is the largest gain since January and points to a sustained underlying economic recovery. Many investors doubted the robust labor market would continue after last month’s dismal 75,000 gain, which was revised down to 72,000 in this month’s report.

The U.S. unemployment rate increased slightly to 3.7% from 3.6%. The slight gain can be attributed to an increase in people looking for jobs, which is a sign of optimism.

The U.S. average hourly earnings year-over-year growth remained above 3%, at 3.1%. Although expectations had been for a 3.2% hike, 3.1% means workers continue to see wage gains above inflation and are benefitting from the strong economic recovery.

There are enough uncertainties for the Fed to ratchet rates slightly lower. Our expectation is the Fed will still cut rates in July by 0.25%. The jobs report makes additional cuts less certain. Strong economic data, like last month’s employment figures, are likely to slow the pace at which the Fed cuts rates and reduce the number of cuts, too.

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