Market Watch: July 3

It’s been a strong week for markets thus far. U.S. stocks were up Monday on news of a rebound in previously owned homes, suggesting a turnaround in the U.S. housing market, while TSX was up 201 points, as rising oil prices lifted the energy sector. Following Tuesday’s strong performance, the S&P and Nasdaq closed higher Wednesday on news that the Institute for Supply Management’s June manufacturing index rose to 52.6 from 43.1 in May, outpacing analysts’ expectations. The Dow was slightly off Wednesday, while the TSX was closed for Canada Day.

U.S. markets started off strong Thursday on upbeat jobs data showing 4.8 million jobs added in June, bringing the unemployment rate down to 11.1%. However, permanent job losses keep rising as the “core” unemployment rate jumped to 5.9% in June, a number that’s expected to rise as more businesses close for good. By Thursday’s close, the Dow had added 92 points, the S&P gained 14, the TSX climbed 107, and the Nasdaq added 53 points to hit a new record close.

Strong Week for N.A. Equities

For the four days covered in this report, the Dow surged 812 points to close at 25,827, the S&P 500 rose 121 points to settle at 3,130, while the tech-heavy Nasdaq jumped 451 points to close at 10,208. In Canada, the TSX climbed 433 points to end at 15,622.

Strategy

The U.S. Bureau of Labor Statistics (BLS) reported total nonfarm payroll employment rose by 4.8 million in June, accelerating from an upwardly-revised gain of 2.7 million in the prior month, and beating the consensus estimate calling for an increase of 3.2 million.

June’s increase is the largest since records began in 1939. The unemployment rate fell to 11.1% in June from 13.3% in May and was also better than the median consensus estimate of 12.5%. The easing of lockdown restrictions imposed to contain the COVID-19 pandemic led to a resumption of economic activity and an improvement in employment. Although unemployment fell in May and June, non-farm employment is 14.7 million, or 9.6%, lower than its February level. The labor force participation rate increased by 0.7 percentage points in June to 61.5% but is 1.9 percentage points below its February level.

In June, employment in leisure and hospitality were sharply higher while job gains were also robust in retail trade, and education and health services. Employment in leisure and hospitality increased by 2.1 million, representing approximately 40% of the gain in total nonfarm employment. Employment in food services establishments rose by 1.5 million, following a gain of the same magnitude in May. Despite these gains, employment in food services is down by 3.1 million since February. Employment in retail trade rose by 740,000, after a gain of 372,000 in May but is still 1.3 million lower than it was in February. Employment was down in the mining industry, which has been steadily dropping since early 2019.

The BLS also addressed concerns regarding the quality of the employment data. Previous releases have been erroneously classifying some individuals as employed even though they were not working, causing the official unemployment rate to be understated. The BLS noted that the degree of misclassification declined considerably in June as they have been reviewing survey responses that might have been misclassified.

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by Josh Hall (Twitter: @Vancan19)

Market Watch: July 3

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