Strong tech earnings brought a surge of optimism to Wall Street this morning despite a “stagflationary” jobs report that fell short of predictions. The Dow, S&P, and Nasdaq Composite all traded higher through noon, with increases of 0.6%, 0.6%, and 0.9% respectively.
Of the companies driving these gains, Amazon led the charge, with shares skyrocketing by 11% as they crushed profit forecasts and provided a positive outlook. This impressive performance contrasted with Apple, which witnessed a 3% drop due to dwindling revenues. Outside the realm of tech giants, Booking Holdings and Amgen also provided a cause for celebration, their strong earnings results sparking 10% and 5.9% surges in their stocks.
Roughly 80% of S&P 500 companies managed to outperform Wall Street expectations, which showed a 7% annual decline in earnings for S&P stocks on average.
Bulls also welcomed a cooling of the 10-year Treasury yield, which pulled back from a recent peak to 4.123%. This comes after a period of strain on risk assets due to a sharp increase in yields.
Not to be overshadowed by Amazon’s big day, the July jobs report also came out this morning, revealing a lower-than-anticipated 187,000 job gain last month compared to the predicted 200,000. Unemployment also fell to 3.5%.
Inflation warnings flashed as average hourly wages grew by 0.4% in July, bringing the annualized rate to 4.4%, slightly above expectations (+4.2%). The interpretation of these numbers and their implications for the Federal Reserve’s monetary policy has been the focus of considerable attention.
Still, according to the FedWatch tool by the CME Group, about 87% of traders predict the Federal Reserve will keep rates steady in its upcoming September meeting. Yet, Wells Fargo Securities’ Head of Equity Strategy, Chris Harvey, suggested that next week’s consumer price index may significantly alter rate expectations.
In his words, “A hotter-than-expected print is one of the few things that could really start to change the market’s perception of the Fed, and maybe the Fed’s perception as well.”
Also included in the jobs report today was a revision lower by 49,000 jobs across May and June’s data. Back in June, the BLS revised the April and May prints 110,000 jobs lower.
With July’s seasonal adjustment removed, the economy actually lost about 819,000 jobs. It was one of the largest July adjustments in many years.
In short, US labor is cooling far more than today’s print (or the last few prints) would suggest, simply because the “real” data has been buried in revisions. The BLS’s household survey, from which the unemployment rate is derived, showed that Americans are still struggling to find full-time employment.
Part-timers and multiple-jobholders have steadily trickled higher along with wages, which could eventually worry the Fed if wages remain high and the downward revisions continue. Next week’s 10 and 30-year Treasury auctions are likely to shape the narrative on yields, and whether stocks will continue lower or rebound higher again.
Keep in mind that stocks plummeted Wednesday on a yield surge that occurred when the US government revealed a far larger-than-expected future debt raise. If yield-related fears arise once more, bulls could find themselves in hot water as uber-bullish hedge funds (of which almost all hedge funds currently are) look to unwind bull trades.
