Stocks Finish Friday’s Session Mixed; GDPNow Points to Third Quarter Expansion
Last Updated 4:20 PM EST
Stock indices finished Friday’s trading session mixed. The Dow Jones Industrial Average gained 0.23% while the S&P 500 and the Nasdaq 100 fell 0.16%, and 0.78%, respectively.
The consumer discretionary sector (XLY) was the session’s laggard, as it declined by 1.7%. Conversely, the energy sector (XLE) was the session’s leader, with a gain of 1.97%. In addition, WTI crude oil remained below $90 per barrel at around $88 per barrel.
The Atlanta Federal Reserve recently updated its GDPNow reading, which allows it to estimate GDP growth in real-time. Currently, it estimates that the economy will see an expansion in the third quarter after seeing two consecutive quarters of decline. This seems possible when considering today’s Nonfarm Payrolls report which came in way higher than expected.
However, this doesn’t mean that the economy still isn’t at risk of a recession. The hot labor market likely indicates to the Federal Reserve that it can move forward with more rate hikes, which will slow the economy down the line.
Indeed, the 10-Year U.S. Treasury yield surged 13.5 basis points to 2.825% while the Two-Year U.S. Treasury yield saw an even larger increase of 19.1 basis points, reaching 3.238%. Still, the bond market remains inverted, as the spread between the 10-Year and Two-Year U.S. Treasury yields sits at -41.3 basis points.
Prices at the Pump Continue to Decline
Last Updated 3:15PM EST
Stock indices are in the red heading into the final 45 minutes of today’s trading session. As of 3:15 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.01%, 0.4%, and 1.1%, respectively.
WTI crude oil is currently hovering around $88 per barrel, as it trades not too far away from its session low of $87.03 per barrel. The price has pulled back considerably from last week’s high of $101.87 per barrel.
Consumers will be happy to see that the commodity’s continued downtrend has led to lower gas prices across the country. The national average for regular gas was last $4.113 per gallon, down from yesterday’s reading of $4.139. This is significantly lower than the all-time high of $5.016 per gallon on June 14.
The highest price can be found in California, where prices are substantially higher than the national average, at $5.509 per gallon. On the other hand, Texas is the state with the lowest gas price, at $3.62 per gallon.
It’s likely that this downward trend will continue going forward as the Federal Reserve looks to raise interest rates to fight inflation. However, higher rates will destroy demand throughout the whole economy.
Average Hourly Earnings Come in Better than Expected
Last Updated 12:20PM EST
Stocks are negative halfway into Friday’s trading session. As of 12:20 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.2%, 0.6%, and 1.2%, respectively.
Investors who may be on the lookout for a wage-price spiral may have reason to be concerned after the Bureau of Labor Statistics released its Average Hourly Earnings report, which measures the month-over-month change in wages.
A wage-price spiral is caused when the price of goods increases as a result of higher wages but also leads to workers demanding higher wages as a result of the higher prices. As a result, it creates a perpetual loop of price and wage increases.
A way investors can gauge the presence of a wage-price spiral is by comparing average hourly earnings to inflation. If earnings are higher than inflation, it could be a warning sign that the loop is beginning to form.
The good news is that wages grew 0.5% in July compared to the previous month, beating the forecast of 0.3%. The most recent consumer price index grew 1.3% month-over-month, which was mostly caused by an increase in energy and food prices. When looking at the core consumer price index, the last reading was an increase of 0.7% month-over-month.
However, the most recent CPI numbers are from June. Economists’ forecasts for July’s inflation numbers paint a potentially problematic picture. Core CPI is expected to come in at 0.5%, which is equivalent to wage growth, while CPI is expected to be only 0.2%.
If economists are right, or inflation surprises to the downside, we could very well be in the early stages of a wage-price spiral.
Nonfarm Payrolls Beat Expectations
Last Updated 10:00 AM EST
Equity markets are in the red 30 minutes into today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.3%, 0.6%, and 1.2%, respectively.
On Friday, the Bureau of Labor Statistics released its Nonfarm Payrolls report, which came in way better than expected. This report measures the change in the number of individuals employed during the previous month but doesn’t include the farming industry. In July, job growth was 528,000 versus the forecast of 250,000.
The Bureau of Labor Statistics also released payroll data for manufacturing and private nonfarm jobs. Private nonfarm and manufacturing payrolls both beat expectations, coming in at 471,000 and 30,000, respectively.
Furthermore, the unemployment rate actually fell to 3.5% from 3.6%, which beat expectations as well. However, labor force participation ticked down slightly from 62.2% to 62.1%.
This is not ideal, as it shows that fewer people are working as a percentage of the total working-age population. Nevertheless, it’s a very small change that doesn’t have a material impact on the economy.
Given that nonfarm payrolls beat expectations by a significant amount, it could signal to the Federal Reserve that it hasn’t tightened enough to stop inflation. This is especially true since the unemployment rate has remained steady near all-time lows. As a result, it will use this data to justify higher rates if inflation continues to remain high.
Pre-Market Update
Stock futures were mixed early on Friday ahead of the much-awaited July jobs report, which is due out later in the day. This data will give investors a clearer idea about where the economy is headed.
Futures on the Dow Jones Industrial Average (DJIA) gained 0.06%, while those on the S&P 500 (SPX) inched 0.03% lower, as of 5.49 a.m. EST, Friday. Meanwhile, the Nasdaq 100 (NDX) futures retracted by 0.12%.
At the end of the regular session of Thursday, the S&P 500 and the Dow were down 0.08% and 0.26% respectively, whereas the Nasdaq 100 gained 0.44%.
Economists expect a significant number of jobs to have been added in July. However, the number is likely to have dropped month-over-month. More precisely, the consensus of economists is looking at an addition of 258,000 jobs in July, which is lower than June’s 372,000, according to Dow Jones.
Moreover, unemployment is expected to stay put at 3.6%, in the July report.
The reason this data is important for investors is that the labor market typically reflects economic strength. A strong job market in the middle of moderating economic growth can help the economy avoid a recession.
Investors are keen to see whether the labor market could withstand two back-to-back 75 basis-point interest rate hikes (June and July) as remarkably as it did after May’s 50 basis-point hike.
So far, the Fed has drawn strength from the strong labor market to pursue its monetary tightening campaign aggressively. In this regard, there is a possibility for the Fed to tone down its hawkishness in the September meeting if the July jobs market reveals a meaningful cooling in the job market.
