The Week In Review
The stock market ended an abbreviated week on a higher note as a positive reading of the Employment Situation Report for June brought the S&P 500 (+1.5%) within 0.1% of its all-time intraday high (2134.72). The upbeat June employment report sparked a risk rally, indicating a rebound in the labor market without prompting speculation regarding a sooner-than-expected move from the Fed. Additionally, a rebound in oil futures, softening in the dollar, and sector leadership from the heavily-weighted industrial (+1.9%), financial (+1.8%), consumer discretionary (+1.8%), and technology (+1.7%) sectors added to sustained buying interest. The Nasdaq Composite (+1.6%) ended its day ahead of the S&P 500 (+1.5%) and the Dow Jones Industrial Average (+1.4%).
Today's session began on a higher note as a positive reading of the Employment Situation Report for June alleviated concerns regarding weakness in the U.S. labor market. The report showed that both nonfarm payrolls (287K; Briefing.com consensus 175K) and nonfarm private payrolls (265k; Briefing.com consensus 170k) rebounded from disappointing May readings. However, the positive data failed to spark rate hike fears as negative revisions to May's readings, weak average hourly earnings growth, and global uncertainty weigh on rate hike expectations.
The major averages extended their advance through the session as the heavyweight industrial (+1.9%), financial (+1.8%), and consumer discretionary (+1.8%) sectors followed materials (+2.5%) on the leaderboard. The benchmark index notched a session high (2131.71) shortly before the final hour of trade, falling short of an all-time high. The S&P 500 (+1.5%) finished with all ten sectors in positive territory as defensive sectors underperformed. Countercyclical utilities (+1.0%), consumer staples (+1.0%), telecom services (+1.0%) rounded out the leaderboard.
The Dow Jones Transportation Average (+2.6%) finished ahead of the broader market as rail names and airlines demonstrated relative strength. On that note, Norfolk Southern (NSC 86.42, +2.38) and Union Pacific (UNP 90.69, +2.66) jumped 2.8% and 3.0%, respectively. Separately, Avis Budget (CAR 34.61, +3.71) outperformed after Hertz Global (HTZ 47.90, +4.41) disclosed that it signed confidentiality agreements with Carl Icahn and other parties.
The economically-sensitive financial sector (+1.8%) outperformed as credit service names and life insurance companies topped the space. In the group, Capital One (COF 64.71, +2.82) jumped 4.6% after receiving an upgrade at DA Davidson from "Neutral" to "Buy." Elsewhere, MetLife (MET 39.20, +0.93) rallied 2.4% after disclosing that its wholly-owned Hong Kong subsidiary grew by 116% year-over-year in the first quarter. The broader sector gained 1.8% today, erasing a modest weekly loss to finish higher by 0.8%.
The energy sector (+1.3%) finished behind the broader market as the space recovered from sharp weekly losses in oil. The energy component ended its day higher by 0.4% ($45.36/bbl; +$0.17), narrowing its weekly loss to 7.5%. In the group, Baker Hughes (BHI 43.69, +0.15) ticked higher by 0.3% after announcing that its international rig count fell to 927 in June (from 955 in May). Separately, Dow component Exxon Mobil (XOM 93.54, +0.58) finished higher by 0.6%.
The U.S. Dollar Index (96.26, -0.06) ended modestly lower as the yen and the pound gained against the buck. Sterling gained 0.4% against the dollar (1.2953) while the dollar/yen pair finished lower by 0.3% (100.47). On the flipside, the single currency lost 0.1% against the dollar (1.1054).
The Treasury complex ended on a mixed note as the yield on the 10-yr note slipped three basis point to 1.36%. Conversely, the yield on the short-term 2-yr note rose two basis points to 0.61%.
Today's participation was above the recent average as more than 906 million shares changed hands on the NYSE floor.
Today's economic data included the Employment Situation Report for June and Consumer Credit for May:
The June Employment Situation report was a big beat at first glance, but a dive below the surface shows some soft spots in the overall employment picture.
Nonfarm payrolls increased by 287,000 (Briefing.com consensus 180,000).
Over the past three months, job gains have averaged 147,000 per month
May nonfarm payrolls revised to 11,000 from 38,000
April nonfarm payrolls revised to 144,000 from 123,000
Private sector payrolls increased by 265,000 (Briefing.com consensus 178,000)
May private sector payrolls revised to -6,000 from 25,000
The unemployment rate was 4.9% (Briefing.com consensus 4.8%) versus 4.7% in May
Persons unemployed for 27 weeks or more accounted for 25.8% of the unemployed versus 25.1% in May
June average hourly earnings were up 0.1% (Briefing.com consensus 0.2%) after being up 0.2% in May
Over the last 12 months, average hourly earnings have risen 2.6%
Aggregate earnings were up 0.2% on top of a downwardly revised unchanged reading in May (from 0.2%)
The average workweek was 34.4 hours (Briefing.com consensus 34.4) versus 34.4 in May
June manufacturing workweek was down 0.1 to 40.7 hours
Factory overtime was up 0.1 to 3.3 hours
The labor force participation rate was 62.7% versus 62.6% in May
The uptick in the unemployment rate was a function of a slight expansion in the labor force participation rate.
This followed a 0.2% decline in the participation rate and a 0.3% decline in the Unemployment rate in May.
The downward revision to May nonfarm private payrolls resulted in the first negative reading for that series since 2010.
Total outstanding consumer credit increased by $18.56 billion in May after increasing $13.40 billion in April. The Briefing.com consensus estimate for May was $15.70 billion.
In the preceding 12-month period leading up to May, consumer credit had risen by an average of $18.58 billion.
The growth in May was driven primarily by nonrevolving credit, which increased by $16.20 billion. Revolving credit increased by $2.30 billion.
In May, consumer credit increased at a seasonally adjusted annual rate of 6.25%.
There is no economic data of note scheduled to be released on Monday. However, it is worth noting that China will release CPI and PPI reports for June on Saturday at 21:30 ET.
S&P 500 +4.2% YTD
Dow Jones +4.1% YTD
Russell 2000 +3.6% YTD
Nasdaq Composite -1.0% YTD
Week in Review: S&P 500 Flirts With Record Closing High After June Jobs Beat
The stock market extended its post-Brexit rebound with the S&P 500 rising 1.3% for the week. The benchmark index had a better showing than the Dow Jones Industrial Average (+1.1%), but could not keep pace with the Nasdaq Composite (+1.9%).
Despite the underperformance relative to the tech-heavy index, the S&P 500 still closed just below its all-time high with the bulk of the weekly advance coming in response to Friday's release of the June Employment Situation Report (287,000; Briefing.com consensus 175,000).
Post-Brexit concerns were cited for a defensive start to the week, but the cautious tone dissipated by the weekend, at least as far as the U.S. stock market was concerned. The S&P 500 flirted with a new closing record high on Friday after a strong jobs report overshadowed weak average hourly earnings growth (+0.1%; Briefing.com consensus 0.2%). The virtually nonexistent earnings growth likely contributed to the Friday rally in the market, since it will be used as an argument against a rate hike in the near term. Treasuries, meanwhile, dipped immediately after the report, but climbed into the afternoon to the end the week with solid gains, leaving the 10-yr yield at an all-time closing low of 1.368%.
Rate hike expectations, as indicated by the fed funds futures market, did inch up, but not enough to raise any serious concern among market participants. The fed funds futures market sees no chance of a rate hike in July while the implied probability of a hike in September or November is just over 10.0%. Even when looking one year out, the implied likelihood of a hike in June of 2017 is just 32.9%.