The ADP private jobs number for July came in at 179,000 new jobs on Wednesday versus June’s 176,000, and that set a positive tone as we awaited the government’s numbers on Friday. The stock market had been trading flat and mixed, and it was looking for some sort of catalyst to head higher. The planets aligned, and we saw 255,000 new jobs for July in Friday’s report. The stock market was off to the races. The S&P 500 hit an all-time high, which had the bullish camp singing and dancing as we headed into the weekend.
It was a good week for stocks, but the sudden concern from the strong jobs report is that the Federal Reserve could make a pretty good case for raising interest rates at its September meeting. With all of the political turmoil we are seeing, however, it might keep Janet Yellen and the Fed on hold at least until after the November election. The Fed has said that it will remain “data driven,” and despite Friday’s blockbuster employment numbers, the data is just not there.
Yes, we saw 255,000 new jobs in July, and it crushed the expected 185,000 new jobs, but we are still seeing pockets of weakness. Factory orders for June fell by 1.5% versus the expected 1.7% decline, and the June number was worse than May’s 1.2% decline. It seems as though for every positive economic news story, we somehow get an offsetting negative piece of economic news, so that is keeping buyers from putting more cash to work.
There is a feeling of “cautious optimism” out there right now, but whether it is cautious or optimistic, the S&P 500 did hit an all-time high on Friday. The unemployment rate ticked upward to 4.9% from 4.8%, but that did not seem to worry a stock market that was ready, willing and able to close out Friday with an impressive win. This occurred despite a lackluster and mixed earnings season, so seeing the major indices up this week bodes well for the rest of August.
September and October are a different story, though, and we all know how that time of year can unfold. Some strategists are drawing parallels to August of 1987 when stocks peaked and then fell apart and melted down in the late-October of 1987 Crash. That comparison may be a reach, but stocks did peak in August of 1987 before the meltdown that soon followed. We are in a much different scenario today, but it is something to keep in mind as we head toward autumn.
The U.S. political picture “could” turn into a wild card, but whatever the outcome, investors seem unconcerned for the time being. Divided government usually means politicians will be unable to do anything drastic, and we certainly have a divided government and political system right now. We will keep a close eye on the November election that is less than 100 days away, but again, the stock market seems fairly unconcerned.
As for the Federal Reserve, maybe a rate hike of a quarter point might be a smart move. The economy does seem strong enough, and with so many critics of the zero interest rate policies (ZIRP) of the past eight years, maybe it is time for a quick rate hike. The Fed likes to lay low in political seasons, though, so as it has said, it will remain “data driven” right through election day in early November. The Fed definitely does not want to trigger a September or October market meltdown.
This was a very constructive week for the bulls nonetheless, and as long as we can continue to see more positive economic news, we could see more upside for the major indices. That said, the Gorilla wishes each and all a relaxing August weekend. August has historically been calm and quiet, but who knows. We will be back in action on Monday, so again, the Gorilla wishes all a great weekend!
A great weekend, and we will be back in action on Monday. Happy Summer to all!
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