(Friday Market Open) What a difference a month makes.
The job market hit a home run in June, with 287,000 jobs created. That’s well above consensus expectations for 175,000 and a sharp turn-around from the anemic 38,000 jobs created in May.
A big question going into today’s report was whether the May number was a trend or an anomaly. It appears the market has its answer: It was an anomaly.
The new jobs were created in all the good places, including health care, business-to-business services and information services. The information increase mostly reflected the return of Verizon (VZ) workers from a strike, the Labor Department said. How much that strike factored into the low May number is hard to determine, but likely it had an impact.
Employment in some other key industries like construction and manufacturing didn’t really budge during June.
One metric that many keep a close eye on is wages, and there was little wage growth in June, according to the report. Hourly earnings rose just 2 cents, compared with a 6-cent rise in May. However, earnings are up 2.6% year over year. And the labor force participation rate remains low at 62.7%, the Labor Department said.
That May job growth that was so anemic? It looks even worse now, because the government revised it down. But it did revise April growth higher. In sum, job growth has averaged 147,000 over the last three months.
Despite the strong jobs growth, the bond market didn’t really take a step back early Friday, and it’s important to keep watching what bonds do. Many investors are buying stocks, but are also buying bonds and keeping a portion of their funds in safe places.
Unlike the last few jobs reports, when the market was on tenterhooks waiting for the Fed’s reaction, there doesn’t appear to be a huge interest rate component this time around. The Fed has made clear it’s taking a cautious approach, and needs more than one month of data to make any decision on rates. Immediately after the jobs data, futures shifted slightly to reflect a small chance of a September rate hike, when previously they hadn’t forecast any rate hike until December. And futures prices now show no chance of a rate cut in July, after showing a small chance of one prior to the jobs report.
Oil futures rebounded slightly early Friday after tumbling to two-month lows on Thursday, but U.S. crude remains below $46. The lighter than expected U.S. stockpile draw reported Thursday, along with concerns about possible slowing demand from countries like China, seems to be behind oil’s recent weakness.
Follow That Oil: The stock market may not be as tightly correlated with oil as it was earlier this year, but never count oil out as an influence. Such was the case early Thursday, when stocks came under pressure after the U.S. government reported a much smaller oil draw last week than the American Petroleum Institute (API) had reported the day before. The S&P 500 Index (SPX), which had traded at nearly 2110 earlier on, fell back below 2100 soon after the oil data. Though equities recovered later in the day even as oil fell to two-month lows, the correlation remains worth watching. The lighter than expected U.S. draw may have triggered some concerns about how the U.S. economy is holding up under pressure. From a technical standpoint, now that August oil futures have fallen below previous support at last month’s low of $45.83, the next support is near $43, analysts say.
A Lower Tide Lifts Whom? It’s said that a rising tide lifts all boats, but sliding interest rates normally aren’t much help for equities. That is, unless you’re talking about the housing sector. Several stocks associated with new and existing home sales have climbed recently, including Lowe’s (LOW), Home Depot (HD), and D.H. Horton (DHI). This action comes as mortgage rates recently hit record lows. For the most part, housing data have been pretty upbeat over the last month, but the next key reports on housing aren’t due until the week of July 18.
European Vacation: With stocks in Europe under pressure, some investors may be wondering if it’s worth taking a dip into European equities. A strong dollar, the Brexit vote, and the slowing European economy have all taken their toll on stock prices throughout the continent, making them relatively cheap vs. some U.S. companies. Still, analysts interviewed in an article by U.S. News this week advised caution when it comes to venturing into Europe, saying not to lose sight of why stock values there are low and warning that after-shocks from Brexit could continue. Also, analysts are waiting to see if European companies start engaging in equity-friendly behavior such as buying back their own shares, paying higher dividends, or buying other companies’ shares, as U.S. companies have done. That hasn’t really gotten underway in Europe, as of yet.