Markets Rise with Mixed Economic Data
Global equity markets rose last week erasing a portion of the previous week’s losses. We saw global markets (represented by the MSCI All Country World Index) up 1.66% and domestic stocks (represented by the S&P 500 Index) up 1.98%.
Jobs Report and the Labor Market
The Bureau of Labor Statistics released its jobs report this past Friday which showed continued strength in the labor market through June. 372,000 new nonfarm jobs were generated in June which heavily surpassed the 270,000 consensus expectations. The unemployment rate remained at 3.6% which it has been for four months in a row now. Despite the seemingly positive jobs report, the S&P 500 broke its four-session winning streak, the longest daily winning streak since March, falling a modest -0.1%.
While the risks of recession have grown since the start of the year with higher inflation, slowing manufacturing activity, a more aggressive federal reserve, and continued geopolitical concerns, a strong US labor market can be an indicator that a potential recession may be less severe than the average. The below chart depicts the five recessions (post-WWII) where unemployment rose less than average and how the decline in GDP was also shallower and less severe.
The Bond Market
The US 10-year Treasury bond yield rose to 3.10%, elevated by an expected higher federal funds rate following the release of the minutes from the Fed’s June meeting as well as the jobs report exceeding expectations. The 10-2 Year Treasury spread also inverted for the second time this year which is a commonly used signal of a looming recession. However, an inverted yield curve is not a perfect indicator of a coming recession.
In the week ahead, we look forward to the Consumer Price Index report on Wednesday which will give more insight as to if inflationary pressures are easing. Earnings season also begins the latter portion of the week with major banks reporting Q2 results. The focus will be on if companies have been able to weather the higher input costs to their businesses while holding profits.
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.