Another Positive Week as Job Growth Continues
- Stocks were positive across the board last week. We saw global markets (represented by the MSCI All Country World Index) up 0.8% and domestic stocks (represented by the S&P 500 Index) up 0.6%. It was emerging markets leading the pack for the week, posting a 1.6% return (represented by the MSCI Emerging Markets Index).
- The focus of the week was on Friday’s jobs report. Despite adding 559,000 jobs to the economy, it did fall short of some economists’ expectations. This brings the unemployment rate down to 5.8%. As a reminder, the unemployment rate in the U.S. was 14.8% back in April 2020.
- Another item to keep an eye on is wage growth. For the month, average hourly earnings rose 0.5%. While wage growth has been very low for years, we believe that it will be necessary in order for inflation to prove more than transitory.
- On Thursday this week, the Bureau of Labor Statistics will release the monthly Consumer Price Index report. With inflation at the front of many minds, it will likely be this week’s most anticipated economic news.
- News of a slightly disappointing jobs report sent bond yields lower, meaning investors were purchasing bonds and driving prices higher. For the week, the Barclays U.S. Aggregate Bond Index was up 0.1%, bringing the year-to-date return to a -2.2%. Inflation and growth expectations are what drive long-term bond yields, so the economic backdrop this year has been tough for investors owning longer-term Treasury bonds.
- Many investors may look at the jobs report and wonder why markets responded so well to what is being deemed “disappointing,” or at least short of expectations. The biggest concern for markets right now is an overheating economy, where a tight labor market, pent-up demand, and supply chain issues all work together to drive prices through the roof. In that scenario, the Federal Reserve would be forced to switch from a very accommodative to a tighter policy. That would mean their asset purchase program goes away and interest rate increases come faster than expected, both of which would cause some repricing in markets and would be more of a headwind to economic growth. A jobs report showing some growth (but not rapid growth) in labor markets eases those concerns and continues to allow for the expectation of rising rates likely a year or more away.
- 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.
