The surprises keep coming when it comes to U.S. job growth. The continued expansion is helping to propel all of the major US indices to fresh, new, all-time highs. Based on how the jobs reports have gone over the last few months the surprise caught most trades off guard. The S&P futures (ESU16:CME) was trading higher before the report, but after the employment number was released, the S&P popped again.
Backed by fresh buying in biotech and technology shares the Nasdaq have been closing on its old highs set back in the 1999-2000 tech bubble. The Nasdaq futures hit a new milestone after the U.S. Labor Department reported that non-farm payrolls beat out the consensus of 183,000 job, and reported 255,000 jobs in July, 73,000 jobs above expectations.
Nasdaq KBW Bank Index
Most readers we talk to said they thought the jobs number was a good sign for the U.S. economy, but not enough for the Fed to raise interest rates in the next meeting, and possibly not at all for the rest of 2016. We have maintained that there will be no rate hikes in 2016, and that idea was put in stone when the Bank of England lowered rates and added more quantitative easing last week.
While the Dow and S&P have been trading above their old highs, the Nasdaq has been going up for weeks, and finally breached its all time high. Also helping the S&P futures on Friday was the S&P 500 financial sector, which closed up +1.6%, its first higher close on the year. According to Bespoke Investment Group the the S&P financial sector tends to ‘outperform’ after a strong jobs report, rising +0.6% on average after positive surprises over the last two years. The push left the financial up +0.50% marking for the first time in 2016 that all 10 S&P sectors are positive on the year.
Jobs Jobs Jobs
The positive jobs numbers helped push shares of Bank of America (BOA) and Citigroup (C) up more that +3%, while Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS) all jumped more than 2%. All of these factors helped the Nasdaq KBW Bank Index of 24 large lenders trade up a whopping +3.2% for the day. It’s been a big turnaround for the S&P financials that were down as much -23% by mid-February.
While I still do not think the fed will raise rates this year, Friday’s positive jobs report helped push the CBOT’s fed funds futures up to a 45% chance of a rate hike by year end. I am going to stick to my guns that the the Brits lowering rates and the U.S. election will make it hard to do even if the data continues to come in positive. Lets face it, 1% GDP growth over the last 6 months is not slowing down the index markets, and I do not believe that even if the fed does hike rates that the markets will turn back down for very long.