Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
Stocks rallied sharply on Friday following a surprisingly strong jobs report, a resolution of the debt ceiling confrontation, and a growing belief that the Fed will not raise rates at its next policy meeting. The S&P 500 is at its highest level since August of last year, and officially 20 percent off its October lows.
The U.S. jobs report came in much hotter than expected last week, with 339K jobs added in the month of May. Analysts had forecast around 190K jobs would be added. In addition to the job gains made in May, job growth for March and April, which were strong to begin with, were revised even higher by a total of 93K jobs. The unemployment rate, which had anchored itself to a 50-year low, jumped from 3.4 percent to 3.7 percent, the largest month-over-month increase since the pandemic. The report also showed that wage growth slowed in May, providing some comfort to inflation hawks.
May’s robust jobs report likely makes it more difficult to predict the Federal Reserve’s next move, hike or pause. For now, futures markets predict the Fed to leave interest rates unchanged at its June meeting, after rising by 5 percentage points since March of last year, the fastest increase in 40 years. Before the blowout jobs report, Federal Reserve officials indicated that the central bank will likely take a break on raising interest rates at its next meeting.
As many had predicted, over the weekend President Biden signed legislation that lifts the nation’s debt ceiling, averting a default on the federal government’s debt. The final agreement suspends the debt limit until 2025, after the next presidential election. Equity markets responded favorably to the news, though an agreement between the two parties was mostly priced in.
We have a light economic calendar this week, which is typical the week following the jobs report. On Monday we get Factory Orders and both PMI and ISM Services reports. On Wednesday we get the U.S. trade deficit number, and we finish up on Thursday with Jobless Claims and Wholesale Inventories.
As always, we will be watching and reporting back to you next week. Thank you.