On Friday, July 2nd, 2021, the U.S. Department of Labor reported that non-farm payrolls, jumped by 850,000.

The unemployment rate rose to 5.9% as more people voluntarily left their jobs, and the number of job seekers increased.

The median estimate, in a Bloomberg survey of economists, was a 720,000 rise in June payrolls.

Yet, the bulk increase coming from the leisure and hospitality sector, suggests that the reopening of businesses continuously brings forth positive effects on the economy.

On the other hand, average hourly earnings showed an increase of 0.3% as companies pay up to attract candidates.

Some were concerned that a strong payroll number, or the inflationary effects of a rise in hourly earnings, would impose a negative impact on the markets. Possibly, in a sense that it would encourage the fed to move up their timetable on tapering and rate rise…

Fortunately, the jobs report was taken as good news. Perhaps, this might be due to the fact that there are still approximately 7 million people out of work, with room for more growth.

This job report, combined with the impending Biden stimulus package, lit a fire under the markets. Subsequently, new highs were also recorded.

Let’s look at the closing levels.
Dow Jones 34,786.35 +152.82 +0.44%
S&P 500 4352.34 +32.40 +0.75%
Nasdaq Comp 14,639.33 +116.95 +0.81%
US 10Y 1.431 -0.049
VIX 15.07 -2.65%

The trend is: up.

We must remember, though, that many were away for the 4th of July Holiday. So, volumes were not normal.

This Bloomberg article calls for caution. It suggests investors are taking money off the table, taking some profits, and reducing exposure.

The contrast between tech and small-caps indicates that investors are adjusting positions for stronger headwinds.

While it is hard to fight the trend, it is always good to be cautious and not get too caught up in the buying that has made so many records.

Source: CBOE, Reuters, Bloomberg – Payrolls, S&P 500

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 US bank for more than 20 years.

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