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STOCKS MIXED AFTER STRONG US JOBS REPORT
The Nasdaq and S&P 500 Index finished the week with gains, while the Dow Jones Industrial Average recorded a loss as a much stronger-than-expected jobs report revived investor concerns that the Fed will need to keep an hawkish stance to fight inflation. Friday’s payrolls report from the Labor Department showed employers added 528k nonfarm jobs in July, more than double consensus expectations. While markets started to price in a less hawkish Fed following the FOMC July policy meeting, the strong payroll numbers seemed to indicate that the Fed has significant room to raise rates. Meanwhile, US macro numbers were rather on the strong side (the ISM Service sector growth unexpectedly accelerated last month) and corporate earnings reports are coming out above consensus expectations. The strong payroll report helped drive the dollar and U.S. Treasury yields higher over the week, outweighing downward pressure from rising U.S.-China tensions following House Speaker Nancy Pelosi’s visit to Taiwan. In Europe, the STOXX Europe 600 Index slipped 0.6% on stagflation fears as eurozone unemployment rose for the 1st time in 14 months in June while German manufacturing activity contracted in July for the 1st time in two years. In the UK, the BoE raised its key interest rate by 50 basis points, the biggest increase in 27 years. China’s stock markets eased as geopolitical tensions, mortgage boycotts, and tepid economic data kept buyers on the sidelines.
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Most of US equities indices rose to record highs, as investors wagered that a “red sweep” (Republicans winning Presidency, Senate and Congress) would result in faster earnings growth, looser regulations, and lower corporate taxes. The small-cap Russell 2000 Index surged 8.57% for the week but was the sole benchmark to remain out of record territory. Meanwhile, the Dow Jones hit 44.000 for the first time while the S&P 500 closed just shy of 6,000, up 4.7% for the week, its best weekly gain in almost a year. On Thursday, the Fed announced a 25bps rate cut, its first easing move since cutting rates by 50 basis points in mid-September. In terms of economic data, the October ISM services sector activity came in at 56.0, well above expectations and the best reading since August 2022. U.S. Treasuries generated positive returns heading into Friday, as yields largely ended lower than where they ended the previous week.