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Jobs Report & Fed’s Hikes

U.S. Stocks finished mostly lower in volatile trading on Friday, 5th August 2022 after a monster jobs report.  

The U.S. economy added 528,000 jobs in July, the Labor Department reported, more than twice as high as expected, and the unemployment rate ticked down to 3.5%, matching the lowest level since late 1969.  

Average hourly earnings also rose more than expected, up 0.5% for the month and 5.2% higher than a year ago. Signaling that high inflation remains a problem, investors are concerned that the Federal Reserve would continue its aggressive interest rate hikes to cool the economy and dampen inflation.  

The jobs data triggered a surge in the U.S. Treasury yields as investors priced in prospects of a further 75 basis point rate hike from the Fed in September.  

However, the S&P 500 and Nasdaq still posted gains for the week, up 0.4% and 2.2% respectively, while the Dow Jones finished with a 0.1% weekly loss. 

Here are the closing levels on Friday, 5th August 2022:- 

 Last Change %Change 
Dow Jones 32,803.47 +76.65. +0.23% 
S&P 500 4,145.19 -6.75. -0.16% 
Nasdaq Comp 12,657.55. -63.03. -0.50% 
U.S. 10Y 2.83%   
VIX 21.15 -0.29 -1.35% 

Who’s afraid of big Fed hikes? Not this market, if Friday’s trading is anything to go by. 

A massive jobs print with higher, inflationary wages and all we got was a small down move.

It is showing the thinking of the market which is, higher rates will not bring this economy into recession, and it is better to be long or miss the next bull run. 

The bond market was the only one to react appropriately to the jobs data. Yields were up some 20 basis points, pricing in more large hikes from the Fed.  

This jobs data puts the Fed in a difficult position. Are they more behind the curve? 

Would it be more appropriate to hike rates by 100 basis points at the next meeting to stop this stubborn inflationary environment? 

Even with oil prices well below $100, it is probably not enough to lower core inflation. At least lower it to the Fed’s target of 2%. Many analysts believe that inflation is not going to go anyway anytime soon. 

Anyway, there is still a CPI print and another Jobs report before the next Fed meeting, and this is going to give the bulls some excuse to keep the faith and stay long. 

Source: CBOE, Bloomberg

This commentary is written by James Gomes 
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years. 

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