Traders on the floor of the New York Stock Exchange, June 25, 2021.
Source: NYSE
Friday’s job report could be a catalyst in helping determine if the markets are volatile or how the quiet dog days of August are trading.
More than a quarter of the S&P 500 is reporting profits for the coming week. The calendar includes companies from sectors such as consumer staples, insurance, pharmaceuticals, travel and media. From Booking Holdings to ViacomCBS, Wayfair and Kellogg, investors will be watching what companies say about reopening activities, supply chain disruptions and rising costs.
“I think up to 85% of companies reporting earnings have included inflation in their earnings calls,” said Sonal Desai, chief investment officer, Franklin Templeton Fixed Income. “Inflation may not be a problem for policymakers and financial markets, which do not seem to be affected at all. It seems to disturb the people who have to buy things or who produce things.”
The job factor
The Federal Reserve has said the surge in inflation is temporary, and many investors seem to be taking it easy for now. The market is intensely focused on the central bank’s other mandate: the labor market. Fed chief Jerome Powell said Wednesday he would like strong employment reports before he winds up the central bank’s $ 120 billion monthly bond purchase program.
The US Bureau of Labor Statistics will release the July Employment Report on the morning of August 6th. According to the Dow Jones, 788,000 non-farm payrolls are expected to be shown, up from 850,000 in June. The unemployment rate is expected to fall from 5.9% to 5.7%. The average hourly wage is expected to increase by 3.9% year-on-year.
Barry Knapp, director of research at Ironsides Macroeconomics, said he expected the next two monthly job reports to be strong, and the Fed should then be ready to announce in September that it is ready to begin the slow wind down of its bond purchase program .
This is an important step as it would be the first real step away from the simple central bank policies put in place during the pandemic. It would also mean that once the tapering is complete, the Fed would be ready to hike rates.
Game changer for markets
“Friday could be a turning point,” Knapp said of the employment report. Before that, he expects stocks to trade in a tight range.
If the number of new jobs created in July is much higher than expected, at more than 1 million, Knapp said the market could sell immediately because the Fed would be willing to cut its bond purchases.
If the number is weaker than expected, the market could rebound. “We’re in a dead post after winning, with concerns about the pace of the reopening. It’s still a bit of a question mark. The tendency would be higher after a weak number. … Bad is good. Good is bad. ” said Knapp.
Like some other strategists, he may expect a stock market correction this summer.
“I’m in the camp where I think we’ll have our first big correction.” said Knapp. “What we’re likely to get is at least 10% or more. … It could really happen if she did [Fed officials] make the announcement in September. “
Wilmington Trust chief economist Luke Tilley said he anticipates only 350,000 jobs based on the radio frequency data he is observing.
“We believe the run rate is around 500,000 jobs. The last month seems a bit over cooked, ”he said.
Reflation trade
The S&P 500 lost 0.4% last week to close at 4,395, while the Nasdaq lost even more, down 1.1% to 14,672.
Cyclical stocks were among the best performers. Commodities rose 2.8% and energy stocks rose 1.6% for the week. Financial stocks rose 0.7%. But the technology fell 0.7%.
Knapp said it makes sense now to hold stocks that are in reflation trading, such as energy, industry or commodities.
The rise in the delta variant of the coronavirus has become a concern among investors and has pushed interest rates down. The 10-year return, moving against price, has stayed low, trading at 1.23% on Friday amid concerns that the delta variant of the coronavirus could slow growth.
Investors will be watching other key data over the coming week, including the Institute for Supply Management’s manufacturing data on Monday, and unemployment claims and trading data on Thursday.
The China trade
The KraneShares CSI China Internet ETF is down about half of its value from its February high and fell another 2.6% on Friday.
Internet retailer Alibaba is one of the ETF’s top positions. The company is expected to announce its results on Tuesday.
Calendar for the week in advance
Monday
Merits: Take-Two Interactive, Mosaic, Vornado Realty, Eastman Chemical, Simon Property, Transocean, Pioneer Natural Resources, Reynolds Consumer Products, ON Semiconductor, NXP Semiconductor, AXA, Loews
9:45 a.m. Manufacturing PMI
10:00 am ISM production
10:00 a.m. building expenses
10:00 a.m. Boston Fed President Eric Rosengren
2:00 p.m. Senior Loan Officer survey
Tuesday
Merits: Alibaba, Amgen, Eli Lilly, Clorox, KKR, Under Armor, Eaton, Discovery, Pitney Bowes, Marriott, ConocoPhillips, Activision Blizzard, Avis Budget, Public Storage, Devon Energy, Jacobs Engineering, Bausch Health, Incyte, Philips 66, Ralph Lauren , Expeditors International, Nikola, Warner Music
10:00 a.m. factory orders
11:00 am New York Fed publication on household debt and credit
Wednesday
Merits: Booking Holdings, CVS Health, GM, Etsy, MGM Resorts, Allstate, Uber, Fox Corp., Electronic Arts, Roku, Kraft Heinz, Toyota, Sony, AmerisourceBergen, Marathon Petroleum, BorgWarner, Entergy, Apollo Global Management, New York Times, Scotts Miracle-Gro, Tupperware, MetLife, IAC / Interactive
8:15 a.m. ADP employment
9:45 a.m. Service PMI
10:00 am ISM services
Thursday
Vehicle sales
Merits: Regeneron, ViacomCBS, Beyond Meat, DropBox, Expedia, Sprouts Farmers Market, TrueCar, Shake Shack, Square, TripAdvisor, Cushman and Wakefield, Kellogg, Cigna, Zillow, Lions Gate, Ambac, Virgin Galactic, Motorola Solutions, Zynga, Illumina, AIG , SeaWorld, Cardinal Health, Duke Energy, Thomson Reuters, Datadog, Eventbrite, NRG Energy, Choice Hotels, Parker-Hannifin, Wayfair, Zoetis
8:30 a.m. Initial jobless claims
8:30 a.m. international trade
Friday
Merits: Liberty Broadband, Liberty Media, AMC Networks, Draftkings, Fluor, Gannett, Canopy Growth, Nuance Communications, Goodyear Tire
8:30 a.m. Employment Report
10:00 a.m. wholesale
3:00 p.m. Consumer Credit
