Market Update

• Jobs report surprises to the upside, stocks rise. U.S. stocks are moving higher this morning after The Bureau of Labor Statistics released its monthly jobs report showing that U.S. employers added 287,000 new jobs in June versus consensus estimates of 180,000; though the unemployment rate ticked up slightly from 4.8% to 4.9%. Yesterday’s action saw the major indexes little changed, with consumer discretionary leading the way up, while the top three performing sectors year to date–utilities, telecom, and energy–all fell more than 1%. Overnight, major Asian markets closed lower amid continued currency volatility; in afternoon trading, European averages are up around 1%. Treasuries have taken a breather from their recent rally, with the 10-year yieldback above 1.40% in recent days, WTI crude oil is up following Thursday’s 4.6% decline, and COMEX gold is falling.

Macro View

• Strong June jobs report calms recession fears, but downshift in job growth is underway. The U.S. economy created 287,000 net new jobs in June, far exceeding the consensus of economists polled by Bloomberg News, which called for a 180,000 increase. The strong June reading came after a two-month lull in job creation in April and May that saw the economy create an average of just 80,000 jobs per month. Just as we thought, the April/May data overstated the weakness in the labor market, while the strong June report overstates the strength. After creating an average of 200,000 jobs per month from 2010 through early 2016, the average job gain in the past six months has been 175,000; we think by the end of the year, that may downshift to the 125,000 to 150,000 range. The unemployment rate ticked up to 4.9% in June while wage growth accelerated to 2.6% year over year from 2.5% in May.

• Fed, China, central banks dominate the week ahead.With the June jobs report in the rearview mirror, markets will focus on key data coming out of China next week (Q2gross domestic product [GDP], imports and exports, retail sales, and property prices) along with nearly a dozen Federal Reserve Bank (Fed) speakers and the Fed’s Beige Book. The Bank of Canada and Bank of England (BOE) meet next week, with the BOE expected to cut rates in response to Brexit. The U.S. data calendar is highlighted by a post-Brexit view on manufacturing (Empire State Manufacturing) and pre-Brexit views on retail sales, inflation, and industrial production.

• A look at sentiment. The American Association of Individual Investors (AAII) Sentiment Survey came out yesterday and those that voted bullish reached the highest level in nearly three months at 31%. Neutral remains the popular vote though, at 42%. The average neutral vote in 2016 has been 41%, the highest in 28 years. Lastly, the long-term average for bullish has been 38.5% going back to the start of this survey in 1987. Incredibly, for 35 straight weeks, the bullish reading has been beneath this long-term average, an all-time record and topping the previous record of 33 straight set last year.

Monitoring the Week Ahead

Friday

• Employment Report (Jun)
• UK: Consumer Confidence (Post Brexit)

Saturday

• NATO Summit in Warsaw
• G-20 Trade Ministers Meeting in China
• China: CPI (Jun)

Click Here for our detailed Weekly Economic Calendar

 

Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Treasury inflation-protected securities (TIPS) help eliminate inflation risk to your portfolio, as the principal is adjusted semiannually for inflation based on the Consumer Price Index (CPI)—while providing a real rate of return guaranteed by the U.S. government. However, a few things you need to be aware of is that the CPI might not accurately match the general inflation rate; so the principal balance on TIPS may not keep pace with the actual rate of inflation. The real interest yields on TIPS may rise, especially if there is a sharp spike in interest rates. If so, the rate of return on TIPS could lag behind other types of inflation-protected securities, like floating rate notes and T-bills. TIPs do not pay the inflation-adjusted balance until maturity, and the accrued principal on TIPS could decline, if there is deflation.

Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples.

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