Week Ending 5th August 2022
The S&P 500 suffered a decline on Friday after falling as much as 1.1% during the session. But the index and the Nasdaq 100 wrapped up their third straight week of gains, the longest rising streak since April for both. Treasuries sank, with the 10-year yield around 2.83% after climbing nearly 26 basis points since Monday.
The strong jobs report validated the Fed’s view of a resilient economy that can withstand additional interest-rate hikes. Traders have now recalibrated expectations for Fed policy, with a hike of three-quarters of a percentage point the more likely scenario at the September meeting as the central bank battles inflation.
A handful of Fed officials this week reiterated the central bank’s resolve to bring down high prices. Among them is Fed St Louis President James Bullard, who has said he favors a strategy of front-loading big interest-rate hikes. That stance has likely strengthened after Friday’s job report, ruling out the possibility of a dovish pivot that Fed Chair Jerome Powell hinted at last week.
“This jobs report is consistent with an inflationary boom,” said Neil Dutta, head of economics at Renaissance Macro Research. “The Fed has a lot more work to do and in an odd way, that the Fed needs to get more aggressive in pushing up rates, makes the hard-landing scenario more likely.”
Here’s what else Wall Street is saying about the jobs surprise:
Win Thin, global head of currency strategy at Brown Brothers Harriman & Co:
“Odds of a 75 basis point move next month have shot up, as they should. We still get one more jobs report before the September FOMC but barring a disaster, I think 75 bp then is a done deal.”
Eric Theoret, global macro strategist at Manulife Investment Management:
“For the Fed, this report confirms the need to continue tightening and also endorses much of this week’s Fedspeak that sought to jawbone rate expectations. For markets, the report may pose a challenge for rate-sensitive equities like tech which had recently been leading in terms of sector performance.”
Seema Shah, chief strategist at Principal Global Investors:
“All the jobs lost during the pandemic have now been regained. But while that is positive news, markets will take today’s number as a timely reminder that there is significantly more Fed hiking still to come. Rates are going above 4% — today’s number should put to bed any doubters.”
Peter Boockvar, chief investment officer at Bleakley Financial Group:
“This was a great number with the obvious big upside in hirings but when this is happening at the same time GDP is declining, it means productivity is plunging. Also, as the pace of firing is at the highest level in nine months, this pace of hiring is just not sustainable.”
Keith Lerner, co-chief investment officer at Truist Advisory Services:
“Some of the conviction levels around recession are somewhat less. And I think that’s offsetting the other side of the equation which is, OK, that means the Fed will have to be more aggressive. So that’s why you’re netting this out to be a flat day because it really comes down to people questioning their confidence that we were in a recession, which was the primary reason why we were down.”