Volatility picked up during this holiday-shortened week. Tech stocks again suffered the most, falling more than 3.5% off the all-time highs made early last month, submits Lance Gaitlan, Dent Research. In addition, Gaitlan observed bond volatility also increased. Long-term bonds hit 2017 lows early last week and have rocketed higher the last seven days straight. Signs are starting to point to less accommodation by central banks.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of July 7, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
U.S. Economy Created 222,000 Jobs in June… The report beat expectations of 187,000. The figures for April and May were revised higher by a total of 47,000 jobs.
What it means – The report adds to the intrigue surrounding the Fed’s next moves. While we have more jobs, other parts of the employment picture aren’t so bright. Hourly wages ticked up by just 0.2%, and last month’s wage growth was dialed back a bit. Year-over-year, wages are up 2.5%. After adjusting for inflation, real wages have nudged only about 1% higher. That’s nothing to get excited about, and doesn’t make a compelling case for tighter monetary policy.
And then there’s the birth/death adjustment by the Bureau of Labor Statistics (BLS). This is where the BLS estimates the net number of jobs created and lost that did not show up in its survey. For June, the BLS added 102,000 jobs to the total, almost half of all jobs created. Since February, the BLS has reported 863,000 new jobs in the U.S. economy, but the birth/death adjustment has accounted for 743,000 of those positions.
It’s kind of a letdown when you look through the numbers, which might explain why wages aren’t soaring higher and, while the Fed has talked a good game, they’ve taken a long time to make any moves.
Fed Governors Split on When to Shrink Balance Sheet… Minutes of last month’s central bank meeting reflect that some governors want to pare the balance sheet starting in September, others want to wait at least until year end.
What it means – The discussion makes some sort of balance sheet reduction in 2017 seem more likely. This is driving interest rates a bit higher, with the 10-year Treasury creeping up from 2.12% last week to 2.37% this week. No doubt that 20 basis points won't shock the system, but with rates so low, the move is notable.
The talk about not reinvesting all bond proceeds has pre-empted discussions of the next rate hike. I expect the Fed to shelve the move until at least December, if not 2018.
Expect the bond markets to get nervous as September gets closer. The Fed’s buying spree was unprecedented, and the unwind will also be unique. Markets don’t like surprises. Rates will most likely be very volatile in the fall and settle down as we close out the year.
May Factory Orders Down 0.8%… The report missed expectations of a 0.5% drop.
What it means – Meh. Orders were down for both durables and non-durables, although core capital goods orders bucked the trend and were 0.2% higher. Aircraft orders were the main drag on the overall report, but even without them it’s not like factory orders boomed. There just isn’t much momentum for growth right now.
U.S. Birth Rate Falls to Record Low… Only 3.941 million babies were born in the U.S. in 2016.
What it means – The drop wasn’t even across age groups. The biggest decline was in births to teenage mothers, followed by those in their 20s. In fact, births to moms over 30 rose to their highest levels since the 1960s.
The trend in births has a lot to do with economics. More women are waiting until they can better afford parenthood, which pushes them into their 30s or beyond. Interestingly, this record-low comes 80 years after another nadir in births in 1936… in the middle of the Great Depression.
Meal Kit Company Blue Apron Dropped 20% in its First Week of Trading… The company went public last week at $10 and fell to $8 this week.
What it means – As I said last week, arguably the price should be zero. With Amazon buying Whole Foods, all bets are off when it comes to fresh food delivery. The people who run Blue Apron should be thanking their lucky stars that they could price their IPO at all.
Next Week – The week of July 10 is light on economic reports. It includes retail sales and industrial production. Janet Yellen will give Congress an update on monetary policy in regularly scheduled testimony.
The proof is in the planning.
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