Weekly Market Recap

“Defensives had a better time of it last week, particularly following Friday’s payroll miss. The yield curve steepened a bit as well, as traders made some tweaks to their assumptions about near term tapering & rate hikes as well as the longer term inflation outlook. Overall, though, the picture didn’t change a whole lot, as markets mostly treated the payroll and consumer confidence numbers as small bumps in the road rather than any kind of major turning point in the recovery.”

News flow was sparse last week as much of Wall Street wrapped up summer holidays ahead of the 3-day weekend. The most significant economic data point was the monthly jobs report, which showed disappointing job growth relative to consensus estimates:

* Nonfarm payrolls added = +235k (consensus estimate = +733k)

* U-3 Unemployment rate = 5.2% (previous month = 5.4%)

* U-6 Underemployment rate = 8.8% (previous month = 9.2%)

* Avg Hourly Earnings y/y = +4.3% (previous month = +4.1%)

Other economic data was mixed. On the positive side, unemployment claims fell, services and manufacturing PMIs remained solidly in expansionary territory, and construction spending rose. On a more challenging note, the Conference Board’s Consumer Confidence Index fell significantly in August, a move that was presaged by a similar decline in the Univ. of Michigan gauge earlier in the month.

As a result, equity markets took a somewhat more cautious tone last week, with defensive sectors (real estate, healthcare, staples, and utilities) rallying while cyclicals (industrials, materials, energy, and financials) pulled back a bit.

In bond markets, the US Treasury yield curve steepened in response to the payrolls miss, as investors pared back their assumptions about near term tapering and rate hikes while also adjusting longer term inflation expectations slightly. Investment grade credit spreads were stable.

This audio version of the Weekly Market Recap can be found in your favorite podcasting app. Search for “Albion Financial Group”