Last week ended with the Dow Jones Industrial dropping just 0.1 percent, the S&P 500 gaining 0.4 percent, and the Nasdaq closing up 2.2 percent. And a third straight week the S&P 500 finished with a gain.
The three major market indexes remained in the red for the year, with the DOW down 9.7 percent, the S&P 500 down 13 percent, and the Nasdaq off by 19.1 percent.
The big news of the week was the much better-than-expected July jobs report. The jobs report quieted any talk that the country was in a recession and that the economic recovery is fading. Non-farm payrolls increased 528,000 for the month, beating the Dow Jones estimate of an increase of 258,000.
The unemployment rate dropped to 3.5 percent and is back to pre-pandemic levels. The 3.5 percent unemployment rate is the lowest unemployment rate since 1969. Wages also grew more than expected, with the average hourly earnings rising 0.5 percent for the month and up 5.2 percent from this time a year ago.
Higher wages and a blowout jobs report fueled the belief that this will force the Federal Reserve to continue aggressive rate hikes to continue their fight against high inflation.
Also falling below its pre-pandemic levels, the long-term unemployment number also fell by 269,000 in July. According to the U.S. Department of Labor, the number of long-term unemployed dropped to 1.07 million people, compared to 1.1 million before the pandemic began in February 2020.
In July, 18.9 percent of all unemployed Americans that are considered long-term unemployed, down from 39 percent in July 2021. The definition of long-term unemployed is being jobless for at least six months. Those without a job for this long find it harder to get another job due to employment gaps in their resume.
Other economic news includes the Institute for Supply Management (ISM) survey that showed bottlenecks in the supply line were easing. Prices paid by businesses dropped by the most since 2017, due to dropping commodity prices. Labor shortages, especially truck drivers, continued to hamper supply lines.
The market is still skittish about the future plans of the Federal Reserve, even though most think that they will still be aggressive with a 75-basis point increase at their next meeting.
Even though Federal Reserve Chairman Jerome Powell used the phrase “softish landing” a couple of months ago, it is still reverberating in the markets. Other economists believe that the bottom of the market has already occurred in June and that rate hikes will stop or at least pause in early 2023.
Earnings last week continued to improve. Second-quarter earnings of companies on the S&P 500 are expected to increase by 6.7 percent. That is up from the 5.8 percent increase that was projected two weeks ago. As of Friday, 87 percent of the companies have reported results.
The strong jobs report on Friday sent bond prices down and yields higher. The yield of the U.S. Treasury bond jumped to 2.84 percent, which was up from 2.64 percent at the previous week’s close.
Another sign that inflation could be easing was West Texas Intermediate crude oil falling below $90 per barrel for the first time since the Russia-Ukraine war began last February. Oil was trading at $88.37 on Friday afternoon for an overall decline of 10.4 percent for the week.
On Sunday afternoon, the Senate passed the sweeping climate, health, and tax package, also known as the Inflation Reduction Act. The vote was strictly along party lines, with Vice President Kamala Harris casting the deciding vote. It will now go to Congress, where it is expected to pass, and then onto President Biden.
On Wednesday of this week, the Consumer Price Index for July will be released by the Bureau of Labor Statistics. The report will give the market a good idea of inflation and if the rate hikes are working. For June, the figure was running at 9.1 percent on an annual basis.