Stocks break out. After trading in a 4% range for the entire month of August, the S&P 500 Index finally broke above its 50-day moving average amid signs of progress in the U.S.-China trade dispute. The benchmark rose more than 1% for the second day in a row, closing less than 2% from all-time highs set in late July. The most important thing we will be watching technically is if eventual new highs, when they come, are led by the right types of stocks. We’d prefer to see high-beta and cyclical stocks lead this rally, rather than more defensive stocks.
Yields jump. The recent risk-on shift has been especially evident in U.S. Treasury yields. On Thursday, the 10-year yield rose 9 basis points (0.09%) to 1.56%. Yield-hungry fixed income investors may not be out of the woods yet, though. Treasury yields, although low, are still attractive relative to ultra-low rates elsewhere, and there are still several unresolved global issues that could flare up at any moment, sparking a rush into safe haven assets.
Payrolls miss estimates. August’s jobs report was weaker than expected, showing that corporate hiring has slowed some recently. Nonfarm payrolls rose 130,000 in August, below consensus expectations for a 164,000 gain. July’s job increase was also revised down to 159,000, pulling the 12-month average payroll gain down to 173,000. This pace of job gains is solid for this stage of the economic expansion, but it will be important to watch whether the August dip is a prelude to a weaker trend given economic growth has been increasingly dependent on the U.S. consumer. We’ll cover more details of the August jobs report today on the LPL Research blog.
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