Jobs Report Fosters Market Milestones

The labor market closed out the first-half of the year with strong gains. The economy created a greater than expected 288,000 jobs in June and the unemployment rate fell to 6.1 percent, the lowest level since September 2008. Unlike some of the previous reports, this drop in rate occurred for the right reason: more people found jobs while the size of the workforce remained relatively steady. The June results bring total average monthly job creation this year to 231,000, 19 percent faster than last year’s pace and the economy is on track to add more jobs this year than any year since 1999. Still, there are obvious big problems that linger: there are still 9.5 million unemployed Americans, of which about a third (3.1 million) have been out of work for more than six months; many of the new jobs created continue to be in low wage areas like retail and food and drinking establishments; and wage growth remains stubbornly low at just two percent over the past 12 months.

Still, the June report felt like turning point and to celebrate, investors pushed US stock indexes into new record territory. The Dow broke out above the 17,000 level for the first time ever, the S&P 500 is knocking on the door of 2,000 and NASDAQ 5,000 does not seem like such a crazy pipe dream anymore.

This week, it’s back to business as we head into earnings season. According to Fact Set, the estimated earnings growth rate for S&P 500 companies in the second quarter is 5.1 percent, which is down from estimates three months ago of over 6 percent growth. The telecom services sector expected to lead the way; and the financial sector is likely to bring up the rear. Mid-week, minutes from the Federal Reserve’s recent policy meeting will be released. Fed watchers will parse the central bank officials’ assessment of the current economy, seeking clues as to when short term interest rates may rise. Given the recent buoyancy of economic data, the central bank may be rethinking its timing.

MARKETS:

• DJIA: 17,068, up 0.7% on week, up 3% YTD (7 ½ months to go from 16K to 17K, the seventh-fastest 1000-point gain in the index's history)
• S&P 500: 1985, up 0.7% on week, up 7.4% YTD
• NASDAQ: 4,486, up 1.4% on week, up 7.4% YTD
• 10-Year Treasury yield: 2.64% (from 2.53% a week ago)
• August Crude Oil: $104.06, down 1.6% on week
• August Gold: $1320.60, flat on week
• AAA Nat'l average price for gallon of regular Gas: $3.67 (from $3.48 a year ago)

THE WEEK AHEAD:

Mon 7/7:

Tues 7/8:

Alcoa

7:30 NFIB Small Bus Optimism

10:00 JOLTS

3:00 Consumer Credit

Weds 7/9:

2:00 FOMC Minutes

Thurs 7/10:

8:30 Weekly Jobless Claims

Fri 7/11:

Wells Fargo