B y Joy Wiltermuth and Thornton McEnery
Jobs data in focus as Fed mulls tapering bond purchases
The S&P 500 index and the Nasdaq Composite ended at fresh records Thursday, after data showed weekly jobless benefit claims improved slightly ahead of Friday’s August employment report.
How did stocks trade?
The Dow fell 48 points on Wednesday to close at 35,312, while the S&P 500 ended above flat and the Nasdaq Composite outperformed, rising 0.3%.
What drove the markets?
Stocks were back to setting records Thursday, after weekly initial jobless benefit claims dropped by 14,000 to 340,000 in the week ended Aug. 28, the Labor Department reported Thursday.
The upbeat action comes ahead of Friday’s August employment report, which will give markets their next chance to guess when — and by how much — the U.S. Federal Reserve will begin slowing, or tapering, its program of $120 billion in monthly bond purchases.
“The jobs report is going to be big; it’s always big,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management, in a phone interview, adding that a weak payroll report could potentially delay tapering of the central bank’s large-scale purchases, but that’s not the only thing on investors’ minds.
“We know the Fed is going to taper. There’s no doubt about it,” Pavlik said. “What we don’t know is by how much. That’s the question.”
Oxford Economics’ economists Nancy Vanden Houten and Gregor Daco said they expect jobless claims to continue improving, but will be watching to see if businesses and workers have become more cautious due to the spread of the coronavirus from the delta variant, in a research note.
Fed Chairman Jerome Powell has signaled that the central bank would be watching employment data as it mulls the end of its pandemic-era measures to add liquidity to markets.
Also read: Fed chair Powell says he supports starting to taper bond purchases this year
On Wednesday, weak numbers from payroll provider ADP’s private-sector employment report and the Institute for Supply Management’s measure of factory jobs underscored the room the U.S. economy still has to grow in terms of employment.
Beyond the Fed, investors were also looking past the economic devastation tied to Hurricane Ida, pegged as the most expensive ever, which made landfall in Louisiana over the weekend, before triggering a state of emergency in New York City and New Jersey early Thursday due to flooding, while also threatening New England with more tornadoes.
Read: Here’s why New York, Philly and inland spots aren’t safe from climate change-fueled hurricanes like Ida
“I think there’s still some trepidation about what September and October hold,” Pavlik said. “September often is a very hard month for the stock market, and I think that’s on the back of peoples’ minds.”
Should a correction hit stocks, Pavlik thinks investors will buy, since many have been “waiting for bargains,” similar to how shoppers wait for Labor Day and the Thanksgiving holiday sales before buying a new refrigerator or other large appliances.
Stocks briefly pulled back in afternoon trade, with the Nasdaq dipping into in negative territory before finishing at a record high. George Pearkes, macro strategist at Bespoke Investment Group, attributed the action to investors preparing to trade on Friday’s jobs number.
“Sometimes the market is just reacting to noise and that seems like what’s happening today,” said Pearkes. “There is some definite rotation today underneath the surface, out of tech and into other sectors, but we’re not going to have a clear picture of the labor market until September or maybe October as schools reopen and people re-enter the economy.”
In economic data, U.S. factory orders rose 0.4% in July, as manufacturers worked to pump out more goods to keep up with high demand. Economists surveyed by the Wall Street Journal had forecast a 0.3% increase.
U.S. productivity also rose at a revised 2.1% annual pace in the second quarter, a bit lower than the government’s previously reported 2.3% rise from April to June, while a new report showed the U.S. international trade deficit falling from a record high, notching a decline of 4.3% in July to $70.1 billion.
Which companies were in focus
How did other assets fare?
Mark DeCambre contributed reporting
-y Joy Wiltermuth
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