Market Optimism Outweighs Economic Concerns
Despite the ongoing concerns about the spread of the Delta variant and its impact on the economic recovery, investors seemed to shrug off the negative news and focus on the positive signs. Some of the factors that boosted the market sentiment were:
- The second estimate of the U.S. gross domestic product (GDP) for the second quarter showed that the economy grew at an annualized rate of 6.6%, slightly higher than the initial estimate of 6.5%.
- The weekly jobless claims data showed that the number of Americans filing for unemployment benefits fell to 340,000, the lowest level since March 2020.
- The personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, rose 0.4% in July, matching the expectations and easing some of the fears about runaway inflation.
- The Fed’s annual symposium in Jackson Hole, Wyoming, which started on Thursday, was expected to provide some clues about the central bank’s plans for tapering its massive bond-buying program. However, Fed Chair Jerome Powell’s speech on Friday was anticipated to be dovish and reassuring for the markets.
Tech Stocks Lead the Rally
Among the 11 major sectors of the S&P 500, technology was the best performer, gaining 0.86% on Thursday. Some of the tech giants that contributed to the rally were:
- Apple Inc., which rose 1.23% to close at $153.65 per share, after a report that it plans to increase its iPhone production by 20% this year.
- Microsoft Corp., which gained 1.68% to end the day at $301.88 per share, after announcing a new cloud computing deal with AT&T Inc.
- Amazon.com Inc., which advanced 1.33% to finish at $3,425.52 per share, after launching a new service that allows customers to buy now and pay later.
Jobs Report in Focus
The main event for the markets this week will be the release of the nonfarm payrolls report for August on Friday. The report is expected to show that the U.S. economy added 750,000 jobs last month, down from 943,000 in July. The unemployment rate is forecast to drop to 5.2%, from 5.4% in July.
The jobs report is considered one of the most important indicators of the health of the economy and a key factor for the Fed’s monetary policy decisions. A strong report could signal that the labor market recovery is on track and that the Fed could start tapering its stimulus sooner than expected. A weak report could suggest that the Delta variant is hurting the economic activity and that the Fed could delay its tapering plans.
The market reaction to the jobs report could be volatile and unpredictable, as investors weigh the implications for the economy and the Fed.
