Closing Market Summary: Stocks Close Week on Positive NoteThe major averages eked out another win on Friday following the release of the Employment Situation Report for July, which showed an impressive increase in nonfarm payrolls. The Dow (+0.3%) cruised to its eighth-consecutive record close, finishing a tick above both the S&P 500 (+0.2%) and the Nasdaq (+0.2%). For the week, the S&P 500 advanced 0.2%.
In terms of job growth, the July jobs report soundly beat expectations, showing the addition of 209,000 nonfarm payrolls (consensus 181,000). However, in terms of wage growth, investors received another unimpressive reading as the report showed an increase of just 0.3% in average hourly earnings (consensus +0.3%). In other words, it was another 'Goldilocks' report.
Investors have rallied around these 'Goldilocks' reports in the past as they're not hot enough to raise rate-hike concerns that are typically present amid a pick up in economic activity and not cold enough to give investors a reason to question the state of future economic growth.
Rate-hike expectations did shift up a tad following the July jobs report with the fed funds futures market assigning an implied probability of 50.4% to a December rate hike, up from 46.8% on Thursday.
U.S. Treasuries sold off in a curve-steepening trade following the release, leaving the 10-yr yield (2.26%) and the 2-yr yield (1.35%) higher by four basis points and one basis point, respectively. Meanwhile, the U.S. Dollar Index (93.35, +0.65) rallied 0.7% to eke out a modest victory for the week (+0.3%).
In the equity market, the heavily-weighted financial sector (+0.7%) outperformed from start to finish, settling the session at the top of the leaderboard. However, the space slipped to the bottom of its trading range in the afternoon following reports that Wells Fargo's (WFC 52.84, -0.56) customer account scandal could be bigger than previously thought. WFC shares closed lower by 1.1%.
Out of the remaining sectors, seven groups--consumer discretionary (unch), industrials (+0.2%), energy (+0.4%), materials (+0.5%), technology (+0.3%), telecom services (+0.5%) and real estate (+0.3%)--finished in positive territory. As for the laggards--health care (-0.2%), consumer staples (-0.2%), and materials (-0.3%)--the losses were modest.
On the earnings front, a handful of notable small-cap companies dominated the headlines, including Yelp (YELP 40.05, +8.68), GrubHub (GRUB 52.62 +4.37), GoPro (GPRO 9.85, +1.59), and Weight Watchers (WTW 41.39, +8.31). Weight Watchers and GoPro surged 25.1% and 19.3%, respectively, after both companies beat top and bottom line estimates and issued positive guidance.
Meanwhile, Yelp and GrubHub spiked 27.7% and 9.1%, respectively, after GrubHub said it plans to buy Yelp's Eat24 business for $287.5 million in cash. As for earnings, GRUB's latest report was in line with expectations while YELP's showed better than expected earnings and revenues. The small-cap Russell 2000 settled ahead of the broader market, climbing 0.5%.
Reviewing Friday's economic data, which included the Employment Situation Report for July and the June Trade Balance:
- Employment Situation Report for July
- July nonfarm payrolls hit 209,000 while the consensus expected a reading of 181,000. The prior month's reading was revised to 231,000 from 222,000. Nonfarm private payrolls added 205,000 while the consensus expected an increase of 175,000. The previous month's reading was revised to 194,000 from 187,000.
- The unemployment rate declined to 4.3% (consensus 4.3%). Average hourly earnings increased 0.3% (consensus +0.3%), while the previous month's reading was left unrevised at 0.2%. The average workweek was reported at 34.5, as expected. The previous month's reading was left unrevised at 34.5.
- The key takeaway from the report is that it fit that sweet spot yet again for the stock market where job growth was strong but wage growth was not. The assumption, therefore, is that the Fed will continue to wait on its next rate hike.
- Trade Balance for June
- The June trade balance showed a deficit of $43.6 billion while the consensus expected the deficit to hit $44.9 billion. The previous month's deficit was revised to $46.4 billion (from $46.5 billion).
- The key takeaway from the report is that it should factor favorably in the revision to Q2 GDP.
On Monday, investors will receive just one economic report--June Consumer Credit (consensus $16.2 billion)--which will cross the wires at 15:00 ET.
- Nasdaq Composite +18.0% YTD
- S&P 500 +10.6% YTD
- Dow Jones Industrial Average +11.8% YTD
- Russell 2000 +4.1% YTD