August 5, 2022

Weekly Market Commentary August 1st to August 5th 2022

All eyes were on the employment figures on Friday morning as they were the biggest market mover of the week. Nonfarm Payrolls increased 528k in July, more than double the 250k expectation. Unemployment in the U.S. improved to 3.5%, down from 3.6% in the prior two months. Hourly earnings came in ahead of expectations at 0.5% for the month and 5.2% year-over-year. However, Labor Force Participation declined to 62.1%, falling short of expectations. Why is it that labor participation went down amidst increasing payroll numbers and declining unemployment? One explanation would be that previous labor participants took on additional jobs, which wouldn’t be a surprise considering the pinch consumers have been feeling for over a year. In any case, the equity markets did not respond well to these releases, dropping about 1% in the premarket, likely due to investor fears of the “data-dependent” Fed having more confidence to continue rate hikes as they see favorable labor market metrics.

Earlier in the week we had the JOLTS report show a decline in available jobs as the number fell by 556k to 10.7 million. This could be the beginning of a trend as the common theme for Q2 reporting was that companies would begin hiring freezes, reducing the supply of available jobs. Initial jobless claims increased from last month to 260k but were in line with expectations.

The July ISM Manufacturing Index declined modestly from 53 to 52.8. Demand in July slowed slightly with New Orders falling from 49.2 to 48, continuing the year-long downtrend. Employment improved from 47.3 to 49.9, and Factory Orders came in well above expectations at 2.00% compared to 1.60% last month. An increase in Factory Orders with a decrease in New Orders is reflective of inflation, with factories spending more and getting less. The ISM Services Index, on the other hand, increased from 55.3 to 56.7, beating a flat expectation.

An eye-opening data point this week came from the month-over-month Construction Spending reading which came in at -1.10%, the lowest reading since April of 2020. Private single-family construction was the largest contributor for the miss, only partially offset by a small increase in private multi-family construction.

The equity markets had some mixed results during the week. The S&P 500 mainly traded sideways and closed 0.3% higher at 4,145. A strong tech performance during the week sent the NASDAQ 2.2% higher for a close of 12,657. Finally, the Dow Jones Industrial Average closed -0.1% lower at 32,803. For Treasury Yields, the 2-Year yield finished at 3.24% while the 10-Year yield finished at 2.83%, a spread of -0.41%, the largest negative spread since August of 2000.

87% of S&P 500 companies have reported Q2 earnings with 75% reporting a positive EPS surprise and 70% reporting a positive Revenue surprise. The blended growth rate for the S&P 500 is 6.7%, which, if accurate, would mark the lowest earnings growth rate reported by the index since Q4 2020 (4.0%). The lower earnings growth rate can be attributed to both a difficult comparison to unusually high earnings growth in 2021, as well as continuing macroeconomic headwinds.

Key economic releases next week include Consumer Price Index (CPI) inflation, Initial Jobless Claims, and Consumer Sentiment.

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