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Weekly Market Update for September 3, 2021

by JM Hanley

The market as a whole drifted upward again this week. That masked significant dispersion, as growth stocks significantly outperformed cyclical companies that benefit most from reopening. Rising concerns about the Delta variant’s affect on growth have weighed upon the latter. Industrials, energy firms, and banks (which benefit from higher interest rates) underperformed the most. Large tech companies like Google, which tend to grow no matter the state of the economy, led the market higher. The SP 500 finished the week up 0.6%; the Dow was down 0.2% and the tech-heavy Nasdaq was up 1.6%.

Today’s jobs report was the marquee release of the week, and it sent mixed signals. Many fewer jobs were created last month than expected as the Delta variant spread across the US. On the other hand, the unemployment rate went down, as much as it has in every month of 2021 so far. Wages continue to increase, albeit not as fast as inflation. E Employees are also working more hours than they were before the pandemic. Job openings, and people quitting their jobs, also increased. The number of available jobs per unemployed worker is at a record high.

In other words, the Delta variant has caused some of those without a job to put off looking for work for longer. Labor force participation has decreased. The expiration of high pandemic unemployment benefits next week may change their calculus. The economy will benefit if they find their way back sooner rather than later. The long-term unemployed typically find it hardest to return to the workforce. Overall, the economy remains seven million jobs short of where it ought to have been before the pandemic.

Because the poor report was due to fewer people looking for work – rather than economic growth slowing – it’s unlikely to change the Fed’s behavior. The Fed will probably reduce bond purchases, one of its two support mechanisms to prop up the pandemic economy, at its December meeting. That minimized the report’s impact on the market.

Next week seems to be relatively light on news. Wednesday will bring data on job openings, while one indicator of August inflation will come on Friday. Our office will be closed Monday for the Labor Day holiday.

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