What’s the next act after Friday’s July jobs report blew away expectations and lifted stocks to new highs? Retail sales for one, and several other reports of note are also on tap.
But before that, investors may want to continue to digest the jobs data, which, for the second-straight month, showed the economy’s job-making machine firing on all cylinders. The anemic May jobs data, which at the time cast so many doubts about the economy, now looks like it may have been an outlier, and average jobs growth for the three months ended in July is now around 190,000, a level approaching the healthy job growth seen in 2014 and 2015.
The stellar U.S. job and wage growth could be tough to follow, but Friday’s monthly retail sales data could grab some of the post-jobs report spotlight. July retail sales, which come after strong 0.6% retail sales growth in June, could be interesting to watch to see what the report says about how brick-and-mortar stores performed vs. Internet retailers. The back-to-school season may give brick-and-mortar a fighting chance to shine, because shopping for school supplies is often an active endeavor, with parents and kids going to the store together to pick out favorite products. Though July may seem early to some to talk about school spending, remember that college begins within days for many, and also some elementary schools on non-traditional schedules have already started classes.
Consumers have been behind a lot of the recent economic strength, as even the otherwise tepid Q2 gross domestic product (GDP) report showed late last month. Will consumers continue to show up at the stores? We’ll find out on Friday.
Another report to watch in the week ahead is the June “JOLTS” job openings, which are due out Wednesday morning. The nice data from the July jobs report would seem to indicate some growing wage pressure, with wages up 2.6% over the last year and 0.3% in July, so it will be interesting to see if the JOLTS reports shows lots of openings in high-wage positions.
Other pending reports include the Investor Movement Index®, or the IMXSM, data on Monday from TD Ameritrade, which tracks whether retail traders are buyers or sellers in the markets and where they’re allocating their money; and July Producer Price Index (PPI) data on Friday.
Going back to Friday’s Payrolls report, which showed a gain of 255,000 jobs in July and retroactively raised payroll growth for May and June, there’s a lot to like. Hourly wages rose at a rate that outpaced expectations, and the quality of the jobs added was mostly pretty good. Professional and business services had the most jobs created, coming in at 70,000 new positions, the government said. Health care rose 43,000, and Wall Street jobs increased by 18,000. Hospitality and leisure added 45,000 new positions. Those services jobs, by the way, were mainly high quality, with lots of the new services positions coming from professional and technical jobs. The government added jobs as well, but this could be a seasonal effect. What’s important is to see new jobs that give people the ability to build solid careers, and this report offered more evidence of that.
The positive jobs data gave the U.S. dollar a jolt after the currency had slumped for a few days. The dollar rose against the euro, the pound, and the yen on Friday. Gold, which had been rallying, fell sharply on Friday. Also getting hammered Friday were VIX futures, which measure market volatility. They fell to a new low for the year at 11.25 as of midday. That’s not far off the lows set in the summer of 2015, and VIX is now down almost 14% in the last three weeks.
Speaking of hammered, the same could be said for the U.S. Treasury bond market as of midday Friday. The strong jobs data appeared to indicate a better chance for a U.S. rate hike at some point this year, and rising bond yields could reflect that psychology. After falling below 1.5% earlier in the week, 10-year Treasury yields climbed above 1.56%.
Chances of a September rate hike are now pegged at 18%, according to the futures market, up from 12% before the jobs report. The odds for a hike in December climbed above 40%.
Though talk after the jobs report immediately turned to potential increased odds for a rate hike, remember that the Fed’s September meeting remains a long way off, and there’s another jobs report and a lot of other data between now and then. Later this month, Fed Chair Janet Yellen is scheduled to speak, and her comments could be closely watched for any hints of the Fed’s thinking on the rate front as well as its perspective on the broader economy.
It’s also a bit early to start speculating about Q3 economic growth, especially since the market is just recovering from the government’s first estimate for Q2 GDP, but it’s worth noting that the Atlanta Fed projects Q3 GDP growth at 3.8%, which sounds quite healthy compared to the approximately 1% growth seen so far for the first half of the year.
Crude Market Still Burdened By Inventories: Oil, which had rallied in the middle of last week, gave back some gains Friday amid strength in the U.S. dollar after the jobs report, but remained above the psychological $40 a barrel mark. The fledgling rally from lows below $40 earlier in the week started when the U.S. Energy Information Administration (EIA) said Wednesday that gasoline supplies had fallen 3.3 million barrels last week. Oil supplies rose 1.2 million barrels, but the futures market appeared to zero in on the gasoline inventory plunge as a sign of strong U.S. demand, and prices rose accordingly. But any rally in oil is going to have to come amid what remain historically abundant supplies for this time of year, with the EIA saying oil inventories reached 522.5 million barrels at the end of July, compared with 455.3 million barrels a year earlier. Still, the jobs report appears to indicate more strength in the U.S. economy, and that could ultimately be bullish for oil.
Pharma Fail as Bristol-Myers Squibb Has Rough Day: There was news from the pharma sector Friday as Bristol-Myers Squibb Co (NYSE: BMY) reported disappointing clinical trial results for its cancer drug Opdivo. The drug failed as a single agent for lung cancer in a trial that would have been the basis for widely expanding use of the treatment, Bloomberg reported. In the wake of this news, BMY shares fell as much as 18% Friday, the biggest drop for the stock in 14 years. Meanwhile, shares of Merck & Co., Inc. (NYSE: MRK), which makes a competing drug, rose as much as 8.2% Friday. The lesson here? Pharma can sometimes be a volatile place to invest. That’s why diversification can often be the investor’s best bet.
Technical Barriers Busted: The S&P 500 Index (SPX) blew through what some analysts saw as a technical resistance level at 2176 to post new all-time highs above 2180 on Friday after the jobs report, and the Nasdaq index also reached record territory above 5220. Bank stocks led gains in the SPX, as financials rallied on hopes for higher interest rates. Where is resistance now for the SPX? There’s an area of resistance at around 2183, so that’s the next level for the market to hurdle if this rally continues.
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