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Weekly Market Update for July 2, 2021

by JM Hanley

Markets drifted upwards in another quiet summer week with little change to the prevailing narrative. Stocks and bonds continue to benefit from the Fed’s hawkish turn on inflation. Additionally, several economic data points affirmed the economy’s steady recovery. Vaccines seem effective against new variants, and the infrastructure package remains in limbo. The S&P 500 finished the week up 1.7%. Technology and other growth stocks outperformed the market as a whole.

Today’s jobs report was at a “Goldilocks” level for the market. The economy added over 850,000 new jobs last month, more than expected. Leisure and hospitality led the way in job creation as customers return. Education was also strong. However, car manufacturing jobs declined due to the worldwide shortage of computer chips that has slowed assembly lines. Construction jobs also fell. The high price of lumber had led some builders to delay projects earlier this year. But lumber has since come back down, and with the housing market still booming, sector employment should return to strength.

Despite the strong numbers, fewer of the unemployed are taking jobs than would be expected – a unique feature of this labor market recovery. Generous unemployment benefits and continuing concerns about the coronavirus are often cited as factors. Also important is the fact that the economy has changed over the past sixteen months. Services have suffered, while goods (manufacturing, logistics, and the like) have boomed. Unemployed workers might need to take jobs in different industries, or in a different location. That could take time. Finally, many workers have been unemployed since the start of the crisis, and the long-term unemployed typically find it more difficult to return to work.

Wage growth was as expected. Transportation, warehouse, and hospitality workers – all industries surging as the economy reopens –did best.

Overall, these numbers are consistent with a healthy recovery, and stand in contrast to sluggish figures from May and April. But the economy remains seven million jobs short of its pre-pandemic level. In this context, the numbers aren’t yet high enough to prompt the Fed to raise interest rates or curtail bond-buying earlier than planned.

Other economic indicators were mostly consistent with a rapidly recovering economy. Consumer confidence increased, as did factory orders. Home prices continue their steady march upwards; unsurprisingly, pending home sales bounced back from a drop in May.

Next week will also be quiet. On Wednesday, data on job openings will be released, which will provide further insight into the unusual state of the labor market. This week marks the end of the second quarter, and earnings reports will begin the week after next. Investors will be listening to what senior management has to say about cost inflation and consumer demand in the hardest-hit sectors.

Markets, and our offices, will be closed Monday for the Fourth of July.


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