Strong Jobs Report Lifts Stocks Higher on the Week
Stocks rallied today following a better than expected June jobs report. Today’s moves pulled both major indices positive on the week. The combination of the jobs report and the sharp move higher in the the 10-yr Treasury the last week or so points to a better economy than some have thought over the last few months. Read More
June Jobs Report – The US economy added 222k net new jobs in June. This was well above the 179k average estimate among economists. Additionally the figures for April and May were revised higher by 47k total jobs. The unemployment rate moved slightly higher to 4.4% from 4.3% a month ago. We’ve had a relatively soft stretch in the labor market over the first half of the year, so hopefully this is the beginning of a stronger trend and not an outlier. There are still concerns in the labor market. Too many working age Americans are out of the labor force and have given up looking for work. Wage growth has largely been anemic over the last eight years, although low inflation has helped mask the lack of wage growth. Too many people are working part-time jobs out of necessity rather than choice. All that said, from my point of view, the labor market has remained remarkably consistent over the last eight years. Job growth continues at a rate faster than population growth, but the headline numbers can overstate the true strength of the labor market.
Treasury Rates – I’ve been writing over the last couple months about the different messages the stock and bond markets were sending. The 10-yr Treasury rate, which is the rate the US government can borrow at for a 10-yr term, approached 2.1% just a few weeks ago. At that level, it’s hard to believe the economy can growth at anything approaching 3% a year. In the last 1-2 weeks, however, the 10-yr yield has spiked to 2.38%. That is still a very low level historically, but the sharp move suggests the bond market is not as pessimistic as it was. The stock market has largely moved sideways over the last month or more, so the optimism appears to be slowing in that market. I think we’re starting to see a consensus building that economic growth is likely to be similar to what it’s been over the last few years. Namely, a lackluster 2%-ish growth.
Oil reversed course this week, decreasing 4.0% to close at $44.35/barrel. The yield on the 10-yr Treasury moved higher again, closing at 2.38% from 2.30% a week ago. The average rate on a 30-yr fixed rate moved higher this week, to 3.96% from 3.88% last week.
|10-yr Treasury (∆ in bps)||2.38||9||(6)|