The S&P 500 finished the week at new records on Friday, 6 August 2021, after the monthly US jobs report came in better than expected, and the numbers did not disappoint.
The US economy added 943,000 jobs in July, the highest in 11 months, which exceeded the 870,000 median estimate of economists surveyed by Bloomberg.
Another positive was the revision of June numbers from 850,000 to 938,000.
The unemployment rate fell to 5.4% from 5.9%.
According to the US Labor Department’s household survey, which includes self-employed and part-timers, the increase in jobs totaled 1.04 million. It could be said that the gain in new jobs sent the Dow and S&P 500 higher.
Besides that, the US 10-year yield also traded higher reversing its downtrend (bond prices fell).
This affected the technology-heavy Nasdaq Composite, which closed lower on Friday.
Here are the closing levels on Friday:-
As mentioned previously, Federal Reserve (Fed) officials have made reference to jobs growth as a condition for tapering. These strong jobs report should put them on track to start tapering in September or soon after.
The other main factor influencing the Federal Reserve is inflation.
All eyes will now be watching the consumer price data that is due to be released on Wednesday, 11 August, and producer price index on Thursday, 12 August 2021. A stronger-than-expected reading would send a signal to the market that the Fed may have to consider changing its course.
The Infrastructure vote has been delayed once again. Earlier reports suggested that an agreement was on hand, but now it looks like it will take a few more days.
The question now is this: will the market continue to rally on the growth in jobs and the economy, potential boost from the stimulus, and ignore inflation, rising 10-year yields, and the Fed’s potential tapering?
We have already seen the impact of rising 10-year yields on the Nasdaq.
This uptrend has so far shown to be strong to weather any bad news and buying on dips has been the norm.
Many will point to the recent rise in COVID-19 cases in the US and around the world as a cause for concern and calls for a pullback will grow stronger as valuations get stretch.
Even with the CBOE Volatility Index closing at low 16.15, it is good to note that we are in the summer holiday period and volatility may spike at any time.
Source: CBOE, Reuters, Bloomberg
This commentary was written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large US bank for more than 20 years.
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