Market Perspective for July 7, 2017

Today’s strong June jobs report propelled the market into positive territory for the week. The Dow Jones Industrial Average gained 0.30 percent for the week, the Nasdaq climbed 0.21 percent, and the S&P 500 rose 0.07 percent.

The Dow benefited from continued strength in financials and industrials. SPDR Financials (XLF) increased 1.58 percent and SPDR S&P Regional Banking (KRE) 1.31 percent. SPDR Industrials (XLI) advanced 0.81 percent on the week, despite a 3.18-percent decline at General Electric (GE).

SPDR Energy (XLE) fell 1.40 percent to a new intraday 2017 low on Friday. A mid-week inventory drawdown of 6 million barrels initially pushed prices higher, but was offset by rising U.S. production.

The June employment report was thoroughly positive, adding 220,000 new jobs and beating expectations of 180,000. The unemployment rate ticked up 0.1 percent to 4.4 percent, but only due to increased labor force participation.  The rise in unemployment indicates renewed optimism among American workers.

The manufacturing PMIs diverged in June. The Markit figure saw a moderate decline, while the ISM report jumped to a multi-year high. Both the Markit and ISM service sector PMIs rose in June.

Automobile sales missed expectations, hitting an annualized pace of 16.5 million. Auto companies remain positive as sales of higher-margin trucks and SUVs increased.

The 10-year Treasury yield rallied this past week, closing at 2.39 percent. The German 10-year bond yield hit 0.57 percent on Friday, a new 18-month high. European bond yields have driven the rise in U.S. rates over the past two weeks.

Although many speculate rising interest rates will negatively impact the housing market, iShares U.S. Home Construction (ITB) closed at a new 52-week high on Friday.  Even if rates rise moderately, this can be easily offset by strong jobs creation and increased wages.

Earnings season will kick off next week with several large banks reporting. Analysts expect the S&P 500 will grow earnings by 6.5 percent in the second quarter. The average firm has beaten estimates by 8.2 percent thus far, better than the 5-year average.

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