This past week investors appeared to be suffering either from a post 4th of July holiday hangover or the beginning of the summer doldrums, with U.S. stocks little changed over the shortened trading week. However, even with just three and a half days of trading, there was plenty of economic data for investors to digest.
Some of the positive economic reports for June included manufacturing and employment. For the month of June, the ISM manufacturing report leaped almost 3 points to 57.8, the strongest report since August 2014. Any reading of 50 or above indicates an expansion in the economy. Some of the highlights of the report included strong readings in new orders, production and backlog orders. The recent acceleration in this report, and others, points to a potential surge in the manufacturing sector in the second half of the year. So far, evidence of a surge has yet to show up in government data.
For the month of June non-farm payrolls rose by 222,000 jobs, well above expectations, while Mays’ payroll report was revised higher by 14,000 jobs to 152,000. Though the growth in jobs is positive for the economy, it is not having the desired effect on wages which have only risen a mere 2.5 percent over the past twelve months. This means that the job growth over the past year has been primarily low wage, low productivity jobs. Higher wages are necessary to boost inflation, which at the moment has yet to improve much.
Beginning this week, investors will be focusing on second quarter earnings reports. So far this year, technology stocks have lead the major market averages higher. Of note, in recent weeks investors have begun taking some of their profits in the technology sector off the table, possibly concerned that some technology shares have come too far too fast. This rotation in the market may provide an opportunity for the healthcare sector to take the lead over the next six months, particularly if Congress can agree upon a health care reform bill.
Laif Meidell, CMT
We hope you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster
Weekly Economic Update
HIRING PICKS UP AGAIN
The Department of Labor announced some good news Friday: the creation of 222,000 net new jobs in June, the largest hiring gain in four months. Approximately 4.7 million people reentered the labor force and found work in June, a peak unmatched in 27 years of monthly data. Wages rose 0.2% for an annualized gain of 2.5%. The main unemployment rate ticked north to 4.4% as more Americans joined the job hunt; the U-6 rate, including the underemployed, increased 0.2% to 8.6%, its first rise since January.1
ISM FACTORY PMI HITS 3-YEAR PEAK
In June, the Institute for Supply Management’s globally watched manufacturing purchasing manager index improved 2.9 points to 57.8, its highest reading since August 2014. ISM’s non-manufacturing PMI rose to 57.4 after a half-point gain; its June reading signaled the 90th straight month of expansion for the country’s service sector.2,3
GOLD SETTLES AT ITS LOWEST PRICE SINCE MARCH
The yellow metal fell to a COMEX close of $1,209.70 Friday. It is now on a 5-week losing streak. The price of gold sank 2.6% last week, while the price of silver dropped 6.9%; silver ended the week down at $15.43.4
MAJOR INDICES MAKE SMALL WEEKLY GAINS
Across a stretch of choppy trading days, the S&P 500 added just 0.07% to close at 2,425.18 Friday. The Nasdaq Composite and Dow Jones Industrial Average posted respective, 5-day advances of 0.21% and 0.30%. The Nasdaq wrapped up Friday’s market day at 6,153.08; the Dow, at 21,414.34.5
Monday, Barracuda Networks and WD-40 present earnings. On Tuesday, earnings appear from PepsiCo and Yum! Brands.Wednesday, Federal Reserve chair Janet Yellen visits Capitol Hill to begin two days of testimony on monetary policy in Congress; in addition, the Fed releases a new Beige Book, and Fastenal reports Q2 results. Thursday, Wall Street considers a new initial jobless claims report, plus the June Producer Price Index. On Friday, a river of data arrives: a new earnings season begins with announcements from Citigroup, JPMorgan Chase, PNC Financial Services Group, and Wells Fargo, complementing the initial July University of Michigan consumer sentiment index, the June Consumer Price Index, and June retail sales and industrial production reports.