Equities climbed higher this week on solid earnings results and a big miss in the employment report. The Dow Jones Industrial average climbed 2.67 percent, the S&P 500 Index 1.23 percent and the Russell 2000 Index 0.23 percent. The Nasdaq declined 1.51 percent as investors continued the rotation from growth to value.
SPDR Financials (XLF) increased 4.22 percent this week. A stabilization in interest rates helped the sector, as did economic data. SPDR Industrial (XLI) advanced 3.39 percent and SPDR Healthcare (XLV) 2.29 percent with investors preferring cyclical and value names over growth. SPDR Energy (XLE) rose 8.72 percent. SPDR Materials (XLB) returned 5.80 percent.
The employment report for April was a big miss. Economists were looking for 1 million new hires, but the result was only 266,000 net new jobs. The result was incongruent with every other data set that shows a roaring re-opening of the economy.
Businesses think the problem is the government’s stimulus checks and increased unemployment benefits. The U.S. Chamber of Commerce put out a statement on Friday stating, “The disappointing jobs report makes it clear that paying people not to work is dampening what should be a stronger jobs market…One step policymakers should take now is ending the $300 weekly supplemental unemployment benefit. Based on the Chamber’s analysis, the $300 benefit results in approximately one in four recipients taking home more in unemployment than they earned working.”
Neel Kashkari, head of the Minneapolis Federal Reserve Bank concurred earlier in the day. The current policy of paying Americans not to work is exacerbating both inflation and slowing the economic recovery, increasing the risk of stagflation. There were 111,000 fewer part-time jobs in April, the exact opposite of what should be occuring. These lower-wage jobs are precisely those being “outbid” by boosted benefits.
Initial jobless claims fell below 500,000 for the first time since the pandemic hit last week. This signals that while workers aren’t coming back in force yet, they are losing their jobs at an ever slowing pace.
Economic data elsewhere was strong. The manufacturing PMI stayed high above 60, while the services PMI crossed above the manufacturing PMI to hit 64.7 percent, a sign the reopening is picking up steam.
Motor vehicle sales hit an annualized pace of 18.5 million in April with stimulus checks helping consumers afford down payments on new cars.
On the heels of the latest sluggish payroll reports, the Bloomberg Dollar Spot Index declined 0.7 percent on Friday, piling onto a 0.5 percent dip from the previous day. This was the dollar’s worst performance over the last two months.
Crude oil and natural gas were stable this week, holding near recent highs. Lumber futures climbed more than 20 percent this week, with futures up nearly $300 to a new all-time high of $1,670 per 1000 board feet. iShares Global Timer & Forestry (WOOD) hit an all-time high as well after rising 5.43 percent through Friday.
Earnings season kept on delivering positive results. The blended growth rate for the S&P 500 Index climbed to 49.4 percent for the first quarter. This is more than double analyst forecasts.
Expedia (EXPE) shares spiked 5.24 percent in light of better-than-expected first-quarter results, which reflected a much narrower decline than analysts forecasted. On the other hand, Monster Beverage (MNST) shares took a tumble of 3.97 percent on news of its first-quarter earnings falling short of expectations.
Bonds were higher across the board this week with interest rates moving lower. Investment grade corporate bonds performed the best. iShares iBoxx Investment Grade Corporate Bond (LQD) returned 0.64 percent.