Stocks look to close flat for the holiday-shortened week following a weaker-than-expected jobs report. The Dow Jones Industrial Average and the S&P 500 Index are now within 2 percentage points of their all-time highs. The S&P 500 also breached a key psychological level of 2100 points for the first time since April and closed at its highest level in seven months on Thursday.
Economic data was strong heading into Friday. The S&P/Case-Shiller House Price index released Tuesday indicated home prices are back to within 4 percent of the record high set in 2006. As expected, the latest ISM and Markit manufacturing surveys released Wednesday showed growth for the third consecutive month. Consumer spending posted its biggest gain in six years in April, leading to upward revisions of GDP growth. The Atlanta Fed’s GDP Now model is currently forecasting 2.5 percent GDP growth for the second quarter.
The latest Fed Beige Book released Wednesday reflects continued strength in the economy and the labor market. Auto sales in May fell from April, but are still on pace for a record 2016. Weekly unemployment claims data was better than expected, though May non-farm payroll numbers fell short of expectations with the creation of just 38,000 jobs.
The recently resolved Verizon strike mitigated job growth with 40,000 job losses that will be added back in the June report. Wage growth was strong, rising at an annualized rate of 2.5 percent and unemployment fell to 4.7 percent.
Stocks initially dropped on the labor report, but quickly recovered. Odds of a June hike fell to 4 percent and odds of a July hike fell from near 60 percent to near 30 percent. Strong economic data in the month ahead could revive expectations of a July hike, but a June hike is unlikely.
Oil prices remained relatively unchanged as OPEC failed to reach an agreement on production cuts. With prices near $50 a barrel, there’s less urgency for production cuts among nations with lower production costs and stable finances. Domestically, the weekly EIA crude inventory report showed a 1.4 million barrel draw down rather than the anticipated build, which should help to keep prices near the $50 level. The Energy Select Sector SPDR exchange-traded fund (XLE) was down slightly on the week.
In overseas news, Japanese Prime Minister Shinzo Abe proposed a new series of measures to stimulate the world’s third-largest economy, but they won’t be implemented until the autumn. Chinese manufacturing surveys held steady. A poll out early in the week generated some uncertainty over the upcoming UK referendum on EU membership, sending the pound lower versus the U.S. dollar. On Thursday, the European Central Bank (ECB) held interest rates steady, as investors anticipated.
In the last remaining earnings reports of the quarter, investors heard from Medtronic, Michael Kors, Broadcom and Ciena. Medical device manufacturer Medtronic (MDT) beat profit and revenue expectations, and shares rallied sharply on Thursday. Luxury fashion retailer Michael Kors (KORS) also beat expectations when it reported earnings Wednesday. The company increased same store sales as well as overall revenues, easing concerns over reports that Nordstrom (JWN) was phasing out sales of KORS handbags. Shares of Broadcom (AVGO) popped 5 percent on Friday after the chipmaker beat expectations and raised its quarterly dividend. News was even better at Ciena (CIEN), where profits declined less than expected. Shares of CIEN were up nearly 20 percent in two days of trading following the report.