Published On: Thu, Aug 26th, 2021

US Job Numbers Impress on the Upside: Major Indices Remain Near All-Time Highs

A new batch of USA job numbers was released at the beginning of August, showing the economy continues to add new jobs, even though the recovery from the COVID-19 pandemic is not yet completed.

Although the economic front seems to be taking longer, that is not the case with all three US major stock market indices, which are trading at some of the highest levels. Despite a recent pullback, equities are still among the preferred assets, in a world dominated by ultra-low interest rates and fiscal interventions. 

photo: photologue_np via Flickr

Solid job figures suggest the recovery continues

The US economy added 943k jobs in July according to the latest release, and the unemployment rate fell to 5.4% for the first time since the pandemic began. Economists surveyed by Dow Jones expected an average of 845k jobs and 5.7% unemployment, as headwinds like the surge in delta variant or ending fiscal support could have weighed on the bottom line. 

Fortunately, that has not been the case in July, although uncertainties have not vanished yet. Average hourly earnings also exceeded expectations, rising 0.4% during the month and 4% as compared to the same period a year ago. Wage inflation is thus expected to increase over the upcoming month, especially since there are many job openings and companies still struggle to find workers. 

Faced with positive figures, stock market investors and traders continue to favor the reopening narrative. Cyclical stocks had a better performance over the past several months, which put the Dow Jones Industrial Average in the spotlight. Rising oil prices and overshooting inflation are headwinds for growth stocks (tech), even though the market swings back and forth trying to figure out where is the proper allocation. 

US major indices lead in terms of performance

The Dow is trading above $35,000, up around 100% as compared to the pandemic low. Indices trading has been on the rise, given it allows market participants to take advantage of the average price movements of a basket of leading companies. 

Nasdaq and the S&P500 keep the same tone as with the Dow, suggesting US assets benefit from both domestic and foreign demand. That is not the case with emerging markets indices, which are now posting a temporary top and threaten to weaken further over the upcoming months. 

Could good news become bad news for stocks?

Despite impressive job figures and economic recovery, the US stocks markets might be close to a point in which good economic news is actually bad for equities. Fears of an early FED taper are already spreading across the markets as the central bank will have to scale back its asset purchases when the economic path seen before the pandemic is reached again. 

However, on top of asset purchases, interest rate projections are more important. With this regard, the Fed is not expected to raise rates anytime soon, since it could act as a brake on the already fragile economic recovery. Policy normalization might be put on hold on a new rise in COVID-19 cases if that will also alter how companies and people manage to conduct their daily operations.

Author: Lee Sadawski

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