Stocks could look just past weak jobs report and focus on strong earnings

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Traders on the floor of the New York Stock Exchange, June 18, 2021.

Source: NYSE

After a weak employment report, strategists say investor attention may remain on strong earnings growth rather than other potential negatives.

Stocks were mixed last week, ahead of the Labor Day long weekend, with the Nasdaq outperforming, a slightly higher S&P 500 and a stable Dow. The best performing sectors were on the defensive side, led by real estate investment trusts, utilities, consumer staples and health care.

“You have that Labor Day effect. People are coming back from vacation” in the coming week, said Art Hogan, chief investment strategist at National Securities.

Hogan said investors expect business activity to pick up as a result, but generally remain sluggish during the shortened holiday week. Investors can assess their summer performance and move around to lock in gains or add hedges.

“If you look at the past five weeks after Labor Day which has occurred with a market near all-time highs, the week after Labor Day is the worst for September,” Hogan said.

Friday’s disappointing August jobs report, with just 235,000 jobs added, weighed on sentiment, but stocks were mixed.

“My outlook for the last few weeks is sideways to moderately higher, and that looks like where it’s heading. There isn’t a lot of bearish data piling up. At worst, we’re going sideways,” Randy said. Frederick, managing director of Charles Schwab. trading and derivatives.

Frederick said even with concerns about weaker jobs and Covid, investors could continue to focus on profits. Economists blamed the spread of the delta variant of Covid for the weaker-than-expected employment report.

Strategists say other issues for actions in September could include efforts by Congress to pass infrastructure legislation and possible new taxes.

Ignore the job report

Frederick said he expects the market to ignore the August jobs report, which was about 500,000 lower than expected. “I don’t think there is much fallout next week for most,” he added. “The markets are down a bit, but I think they held up better than one might expect.”

Weekly jobless claims data on Thursday could be even bigger than usual due to the big mistake in August’s jobs report. Employment data is important because it is an area where the Chairman of the Federal Reserve Jerome Powell has said he would like to see more improvements before the central bank can decide to slow down its bond purchases.

The market is obsessed with the Fed’s decision to end its $ 120 billion-per-month bond buying program because it is seen as a precursor to interest rate hikes, although Powell pointed out. that the two are not related.

“If you have the impression [the jobs report] is pushing the announcement of a cut at the November meeting, rather than the September meeting, and for the most part it was consensus, ”Hogan said.

Hogan said the market will also monitor all inflation-related data, making Friday’s producer price index important after rising last month. The consumer price index, released the following week, will be even more important for the market.

John Briggs, head of macro strategy at NatWest Markets, said markets will be watching Fed-related headlines after the disappointing jobs report.

“Next week you have [New York Fed President John] Williams speaks. His point of view will be important. He is considered close to Powell, ”said Briggs. Williams speaks at an economics briefing Wednesday afternoon.

What’s next for stocks

Besides the Fed, the next big event for stocks will be the third quarter earnings season, which kicks off in early October. Prior to that, investors will be watching for comments from companies on the results.

Frederick said the strength of earnings had propelled stocks and may continue to do so. The market was so overvalued for a while until the profits caught up, but the profits were spectacular and now the valuations are not as high as they were a few months ago, so we can do it, ” he declared.

Profits are expected to rise 29.8% for the third quarter, according to Refinitiv, after the astonishing 95.6% increase in the second quarter.

“There is a void in the earnings news,” Frederick said, noting that the market could be influenced by geopolitical events in the interim.

But even if the market is running out of steam, it does not expect a massive sell off as for now, falling buyers continue to enter whenever the market experiences a setback.

Calendar for the upcoming week

On Monday

labor day holiday

Tuesday

Earnings: Coupa Software, Casey’s General Store

10:00 am Quarterly Financial Report

Wednesday

Earnings: Korn Ferry, Lululemon Athletica, GameStop, AeroVironment

7:00 a.m. Weekly mortgage applications

10:00 a.m. SUBHEADINGS

1:10 p.m. New York Fed President John Williams

2:00 p.m. The Fed’s Beige Book

6:00 p.m. Dallas Fed President Robert Kaplan’s Town Hall

Thursday

Earnings: Hovnanian Enterprises, American Outdoor Brands, Sumo Logic, Zscaler, Verint Systems, Dave & Buster’s

8:30 am Unemployment claims

10:00 am T2 Quarterly services

11:05 a.m. Chicago Fed Chairman Charles Evans

2:00 p.m. Dallas Fed Kaplan, Boston Fed Chairman Eric Rosengren and Minneapolis Fed Chairman Neel Kashkari

Friday

Earnings: Kroger

8:30 am PPI

10:00 a.m. Wholesale


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