July jobs report could be what gives the market its next big jolt in the week ahead

July jobs report could be what gives the market its next big jolt in the week ahead

July 30, 2021 Off By administrator

Traders on the floor of the New York Stock Exchange, June 25, 2021.

Source: NYSE

Friday’s jobs report could be a catalyst that helps determine whether markets are volatile or will trade like it’s the quiet dog days of August.

More than a quarter of the S&P 500 report earnings in the coming week. The calendar includes companies in sectors such as consumer staples, insurance, pharma, travel and media. From Booking Holdings to ViacomCBS, Wayfair and Kellogg, investors will be watching to see what companies say about reopening activity, supply chain disruptions and rising costs.

“I think as much as 85% of the companies which are reporting earnings mentioned inflation on their earnings calls,” Franklin Templeton Fixed Income chief investment officer Sonal Desai said. “Inflation may not be a problem to policymakers and financial markets, which seem not to be concerned at all. It does seem to bother the people who have to buy stuff or people who produce stuff.”

The jobs factor

The Federal Reserve has said the sharp jump in inflation is just temporary, and many investors appear to be taking it in stride for now. The market is intensely focused on the central bank’s other mandate: the labor market. Fed Chairman Jerome Powell said Wednesday he would like to see strong jobs reports before winding down the central bank’s $120 billion a month bond-buying program.

The U.S. Bureau of Labor Statistics will release the July employment report on the morning of Friday, Aug. 6. It’s expected to show 788,000 nonfarm payrolls, down from 850,000 in June, according to Dow Jones. The unemployment rate is expected to dip to 5.7% from 5.9%. Average hourly wages are expected to rise 3.9% year over year.

Ironsides Macroeconomics director of research Barry Knapp said he expects the next two monthly jobs reports will be strong, and the Fed should then be ready to announce in September that it is ready to start the slow unwind of its bond purchasing program.

That is an important step since it would be the first real move away from the central bank’s easy policies that were put in place in the pandemic. It would also mean the Fed would be open to raising interest rates once the tapering is completed.

Game changer for markets

“Friday could be a game changer,” Knapp said of the employment report. Before that, he expects stocks to trade in a narrow range.

If the number of jobs added in July is much higher than expected, at more than 1 million, Knapp said the market could immediately sell off on the idea the Fed would be ready to pare back its bond purchases.

If the number is weaker than expected, the market could rally. “We are in a dead period after earnings, with concerns about the pace of the reopening. It’s still a bit of a question mark. The bias would be higher after a weak number. … Bad is good. Good is bad,” said Knapp.

Like some other strategists, he expects to see a stock market correction, possibly later this summer.

“I’m in the camp where I think we’re going to have our first…

(Excerpt) To read the full article , click here
Image credit: source