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Disappointing Jobs Report Caps a Down Week for Markets
Markets globally ended the week lower, closing out what had otherwise been a relatively strong month for equities. A sharp sell-off on Friday capped off an already lackluster week, with global equities, as measured by the MSCI All Country World Index (ACWI), down 2.52%, while U.S. equities, represented by the S&P 500, fell 2.34%.
July Jobs Report
As noted above, the Friday sell-off that pushed markets lower was driven by a disappointing July jobs report. Not only did job growth slow for the month, but prior estimates for May and June were revised down by a combined 258,000. After revisions, total job gains for April and May were just 19,000 and 14,000, respectively, signaling a much weaker labor market than previously believed. This data hit as investors were still digesting the Fed’s decision to hold rates steady. While two Fed members dissented in favor of an immediate 0.25% cut, Chair Powell emphasized that a September rate cut was far from guaranteed.
GDP Growth
Some positive news for markets came from a reversal in GDP growth, which expanded at a 3.0% annual rate in the second quarter, marking a strong rebound after a slight contraction in the prior quarter. Both quarters were distorted by the impact of rising tariffs. The latest quarter’s upside was largely driven by a sharp drop in imports, as U.S. businesses pulled back on foreign-made goods after front-loading purchases earlier in the year to avoid higher tariff costs.
Q2 Earnings
Markets also found support from continued strength in corporate earnings. More than two-thirds of the way through earnings season, the latest batch of reports has prompted analysts to raise their overall expectations once again. As of Friday, second-quarter earnings for S&P 500 companies are expected to rise by an average of 10.3%, based on results already reported and estimates for those yet to report, according to FactSet. This marks a significant improvement from the roughly 5.0% earnings growth forecast at the start of the season.
Looking Ahead
Looking ahead, Thursday will be the busiest day this week for economic data, with reports on productivity and labor costs, wholesale inventories, consumer credit, and weekly unemployment claims all scheduled for release.
As Always
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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