Major U.S. stock indices again touched record highs this week, as positive economic news gave further credence to the recovery’s persistence. Employment data took center stage, as both the weekly unemployment figures and the June jobs report indicated positive momentum without being strong enough to change the expected timeline for Federal Reserve action. Unfortunately, health risks still carry the potential to upset the upbeat narrative. As one example, the full reopening of the United Kingdom economy has been delayed by a month due to an uptick in COVID-19 infections, upwards of 90% of which are the Delta variant.
For the week, the S&P 500 Index finished up 1.7%, while the Dow Jones Industrial Average advanced 1.0%. Year to date, the S&P is up 15.9%, while the Dow has gained 13.7%. Weekly first-time unemployment claims decreased more than expected to 364,000 – a pandemic-era low – while continuing claims rose slightly to 3.47 million. The June jobs report beat expectations, as nonfarm payrolls rose 850,000 during the month. However, the unemployment rate ticked up to 5.9%, likely due to a larger number of individuals resuming their job search. While we feel the choppiness in the employment figures will continue through the next several months, these data points indicate a labor market that is slowly but consistently recovering as economic conditions improve.
The measured improvements in the state of the labor force appear to be a recipe for the Federal Reserve to maintain their extended timeline for tapering bond purchases and raising short-term interest rates. Although some states have recently chosen to end enhanced unemployment benefits, the next inflection point for Fed thinking could occur after the benefits expire across all states at the end of September. If unemployment drops precipitously in October and November, it could force the Fed to change course sooner than expected – producing headwinds for stock prices.
Economic bright spots also shined in other areas this week. The housing market continued to demonstrate strength; low interest rates, high demand, and low supply drove the April (most recent) release of the S&P CoreLogic Case-Shiller property value index up by 14.6% compared to last year. Stress test results of large U.S. banks were largely positive, triggering increases in dividends and stock repurchases from several key companies in the sector. United Airlines ordered 270 aircraft, reinforcing belief in the sustainability of the increased number of travelers. Finally, Bloomberg estimates that 47.7 million Americans will travel during the upcoming holiday week across all modes of transportation – approaching the record level of 2019. Happy Independence Day!
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