Thursday, June 3, 2021
Economic data continues to show hiring accelerating
Private payrolls grew at their fastest rate in nearly a year, according to data released this morning by ADP.
- Companies hired 978,000 in May vs. expectations of just 680,000.
- Initial claims for unemployment fell below 400,000 for the first time since the start of the pandemic. That data should set up tomorrow’s jobs report for a positive bounce back following April’s disappointing report.
- Most economists see the unemployment rate falling back below 6% after rising slightly last month.
U.S. markets lower despite encouraging jobs data
- The Nasdaq Composite, S&P 500 Index, and Russell 2000 (small cap) reverse course from Wednesday’s higher close.
- European markets are lower through midday trading with the Euro STOXX 50 down about 0.5%.
- Asian equities finished mixed as China’s services activity growth weakened in May amid lower demand and higher costs.
Latest month of manufacturing surveys point to continued strong global recovery
- The global manufacturing PMI edged up from 55.9 in April to 56.0 in May, an 11-year high amid broad-based strength.
- India was the one soft spot amid ongoing COVID-19 restrictions, as its PMI fell from 55.5 in April to 50.8 in May.
- The UK reading, at 65.6, was particularly strong, while the Eurozone’s readings exceeded those of the U.S., Japan, and China.
- Japan’s PMI edged lower, reflecting restrictions put in place in late April to combat the virus.
- Shortages continue as demand ramps up, evident in longer supplier delivery times, rising backlogs, and higher prices.
- Europe’s recovery is gaining traction, supporting our diminished preference for emerging market equities over developed international in our recommended tactical asset allocation.
Federal Reserve (Fed) to wind down pandemic-era corporate credit facility
- The Fed announced its intention to begin selling off its corporate credit and ETF holdings amassed through an emergency lending facility launched in March 2020.
- The facility was originally launched to provide stability and liquidity to the corporate credit markets, which was an unprecedented, and somewhat controversial, strategy by the Fed.
- The Fed plans to sell the entirety of the holdings (approximately $8.6 billion in ETFs and $5.2 billion in corporate bonds) through the end of the year.
- Given the small size of the holdings, we do not expect the sales to be disruptive to markets nor do we believe this signals the Fed’s intention to start to normalize monetary policy earlier than it has indicated.
- The Fed continues to purchase at least $80 billion of Treasury Securities and $40 billion of mortgage securities each month.
Beige Book Barometer sentiment reaches all-time high
Main Street sentiment in the Federal Reserve’s latest Beige Book, released two weeks before each policy meeting, reached an all-time high since we first started tracking data in 2005, according to LPL Research’s proprietary Beige Book Barometer.
- The Barometer reflects accelerating growth as restrictions are lifted and the economy approaches full reopening.
- Mentions of COVID-related words (virus, pandemic, COVID) fell to a low since the March 2020 Beige Book.
- Inflation-related words also reached an all-time high since 2005 as demand rose faster than supply could keep up, but we expect the mismatch to work itself off as the economy normalizes.
- For more on the Beige Book Barometer, see today’s LPL Research blog, available at 1p.m. ET.
The S&P 500 continued to trade in a tight range just below the May 7 all-time highs Wednesday. The index has traded within 2% of that intraday high going back to May 21 without yet eclipsing those highs. The index is falling in early trading, and the failed test at resistance potentially sets up the S&P for another test of its 50-day moving average, currently 2% below at 4126.
Proceed With Caution in the Bond Market
LPL Research makes a case for higher long-term interest rates but argues that high-quality bonds can still play a pivotal role in mitigating equity risk. Learn more in this week’s Weekly Market Commentary.
Do You Have Your Mind Right?
On LPL Street View video, LPL Financial Director of Research Marc Zabicki lists three practical steps for mitigating the potential havoc irrational influences can have on investment decisions
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