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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 US equities indexes ended the week lower, although the tech-heavy Nasdaq Composite advanced modestly and cleared the 20,000 mark for the first time. The Russell 2000 Index recorded a second consecutive week of underperformance against the S&P 500 Index. Growth stocks posted a third consecutive week of outperformance versus value, thanks in part to gains in shares of Tesla (12%) and Alphabet (8.4%). On the macro-economic side, stagflation fears started to rise once again. Indeed, YoY CPI and PPI both accelerated. Meanwhile overall macro surprises disappointed for the fourth week in a row: on Thursday, the Labor Department reported a surprise jump in weekly initial jobless claims to a two-month high of 242,000.