Cyclicals Beat Tech in Run-Up to Key Jobs Report: Markets Wrap
(Bloomberg) -- Stocks rose ahead of a key jobs report that will shape bets on the path of interest rates and the Federal Reserve’s massive bond-buying program. The dollar retreated.
The S&P 500 closed at a fresh record, with energy and industrial shares among the biggest gainers. Technology underperformed. The U.S. probably added 725,000 jobs in August -- a more moderate pace compared to each of the prior two months, but stronger than gains seen early this year. Atlanta Fed President Raphael Bostic said “we’re going to let the economy continue to run until we see signs of inflation,” before stepping in on rates.
Treasury yields have barely budged since Fed Chair Jerome Powell last week said the central bank could begin tapering its asset purchases this year. But that calm faces a test with the jobs data. The potential for volatility comes from the fact that when officials gather this month, they will release fresh projections for the fed funds rate. And with the labor market pivotal for policy now, Friday’s report is seen as laying the foundation for these forecasts.
“Most market watchers aren’t expecting the U.S central bank to announce its taper plans until its November meeting at the earliest, a full three non-farm payroll (NFP) reports from now,” Matt Weller, global head of research at Forex.com and City Index, wrote in a note to clients. “Nonetheless, traders will still key in on Friday’s big jobs report to see if the labor market is recovering as expected.”
Investors’ concerns about economic growth are overdone, opening the way for potential gains in cyclical assets in the near future, according to Goldman Sachs Group Inc. While economically sensitive sectors dominated the leaderboard in the first half of 2021, they’ve lagged in recent months as the delta coronavirus variant prompted concerns about the pace of the recovery.
“The market is worrying too much about global cyclical risks from Delta outbreaks and China’s slowdown, and our Fed forecast is still more dovish than the market’s,” Goldman strategists led by Zach Pandl said in a note. “So we think some further relief in cyclical assets -- higher equities and higher bond yields -- is likely over the near term.”
Meantime, Bill Gross, who co-founded Pacific Investment Management Co. in the 1970s and retired in 2019, said longer-term Treasury yields are so low that the funds that buy them belong in the “investment garbage can.” Ten-year yields are likely to climb to 2% over the next 12 months, he wrote. The benchmark bond rate is currently around 1.3%.
Some corporate highlights:
- After the close of regular trading, Broadcom Inc. -- one of the world’s largest chipmakers -- gave a bullish sales forecast. Meantime, Hewlett Packard Enterprise Co.’s lackluster outlook indicated its corporate and government customers aren’t spending on computer gear as soon as predicted.
- Virgin Galactic Holdings Inc. slid as the U.S. Federal Aviation Administration won’t allow the company to fly its space plane until an investigation is complete into whether a July 11 flight deviation threatened public safety.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
- The S&P 500 rose 0.3% as of 4 p.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average rose 0.4%
- The MSCI World index rose 0.3%
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.3% to $1.1873
- The British pound rose 0.5% to $1.3834
- The Japanese yen was little changed at 109.94 per dollar
- The yield on 10-year Treasuries was little changed at 1.29%
- Germany’s 10-year yield declined one basis point to -0.38%
- Britain’s 10-year yield declined one basis point to 0.68%
- West Texas Intermediate crude rose 1.6% to $69.69 a barrel
- Gold futures fell 0.2% to $1,812 an ounce
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