Stocks and Bonds Rally on Middle East Hopes and Economic Data
Good morning,
The Dow (+3.0%), NASDAQ (+5.2%), S&P 500 (+3.6%) and EAFE (+2.3%) all finished up sharply for the week. Meanwhile, taxable bonds gained 0.6% and tax-free municipal bonds gained 0.7%. The 10-year Treasury yield fell 0.07% to finish the week at 4.64%.
Stocks and bonds rallied to start last week on optimism that the Middle East crisis would end, opening up the Strait of Hormuz for oil transport. That optimism was bolstered by a continued flow of strong corporate earnings reports mostly across the board. Lastly, the market jumped on Friday on a very weak July jobs report. Of course, everyone who reads my recap each week knows that it drives me nuts when bad news is considered good news, but I digress.
The July labor reported showed that the US economy lost 23,000 jobs in July, much lower than the 83,000 job gains expected. Further, the May and June jobs reports were also revised lower (which also drives me nuts that they repeatedly revise past reports – can’t they get it right the first time?). The positive market response was due to investors’ belief that the weaker jobs report could persuade the Fed to not raise interest rates at its next meeting in September. In other economic news, the Institute of Supply Managers (ISM) Manufacturing and Services reports both showed improved sentiment in July, but with the prices component mixed. However, the employment component of the Services index moved lower, and into contraction territory.
In the coming week, the Consumer Price Index (CPI) and Producer Price Index (PPI) will be reported. Given the recent weakness in the labor markets and the volatility in oil prices, these reports will be viewed very closely by economists and investors. Despite weakness in the labor market, strong corporate earnings and other economic data combine to demonstrate that the US economy remains quite strong and resilient to recent inflationary pressure.
Have a great day and terrific week!
Source: Yahoo Finance
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The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
