Don’t expect the stock market to react to Friday’s jobs report
The signs of economic health are not as good as they used to be.
When the Bureau of Labor Statistics releases employment statistics for May on Friday, investors will be looking to see if the job market is still improving and if the economic recovery is on track. But positive news is less likely to move the stock market than this spring or last year.
Even as strong economic data and other signs of strength emerge in recent weeks
It fell about 0.3% from the May 7 record.
Over the past three months, the S&P 500 has risen an average of 0.12% on the day oil prices rose, according to data from Credit Suisse. Over the past year, the daily rise in oil has often been seen as reflecting expectations of improving demand, with market benchmarks rising 0.32%.
Likewise, the index’s rate of increase over the last three months has been 0.2% on average on days when the breakeven point (indicator of inflation expectations) of so-called 10-year Treasuries has increased. Profits last year averaged 0.42%.
And when 10-year Treasury yields rose, showing expectations of inflation and monetary tightening, stock prices edged down, unlike last year’s 0.27% rise. The S&P 500 rose 0.08% as the yield spread between high yield and risk-free Treasuries narrowed, showing that investors are strengthening corporate creditworthiness and profitability. Stocks rose an average of 0.33% per day as spreads narrowed last year.
The difference in this reaction is that stock prices are already reflecting the economic recovery. Inflation is now seen as a threat to equity valuation, but previously it was primarily a test of a treaty that demand was picking up.
If there are any signs of overheating inflation, they are likely to say so. Fear that the Federal Reserve will take action soon to effectively increase bond yields, Negative for stock valuation. But income growth is explosive.It is expected to exceed pre-pandemic level in 2021, and the average stock price is already trading at around 21.5 times expected earnings next year. Some strategists believe that number is decreasing.
Stocks may need new catalysts for significant profits.
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