A whopper of a June jobs report landed in Wall Street’s lap Friday morning, and it kept investors and traders guessing all session.
Anyone looking to the Bureau of Labor Statistics’ latest employment situation for signs of a coming recession walked away mighty disappointed. The U.S. added 372,000 nonfarm payroll jobs last month, shattering consensus forecasts for 265,000. The unemployment rate held firm at 3.6% for the fourth consecutive month. And aggregate hours worked by private workers was up another 2.6% annualized during 2022’s second quarter, following 3.4% annualized growth in Q1.
“You just don’t see that in a recession,” says Bill Adams, chief economist for Comerica Bank.
Indeed, Adams believes between that and average monthly payroll job growth of 457,000 during the first half of the year, “it would be no surprise to see the first quarter’s contraction in GDP revised to growth as statistical agencies get more complete information to measure the economy; GDP is hard to measure in real time and subject to many revisions.”
This good news for the U.S. economy got a more nuanced reaction from the stock market, as some experts think the Federal Reserve could continue an aggressive pace of interest-rate hikes if the economy has strength to bear them.
Jason Pride, chief investment officer of private wealth at wealth management firm Glenmede, says of the central bank’s dual mandate of full employment and low inflation: “For the time being, [full employment] appears intact, affording the Fed the flexibility to tackle its price stability goal head-on. While next week’s [consumer price index] print will be the next important indicator to watch, today’s jobs report likely gives the Fed headway for another 75-basis-point rate hike later this month.”
Stocks swung between shallow losses and gains throughout the day before settling with mixed results. The Nasdaq Composite (+0.1% to 11,635) closed in the black for the fifth consecutive session. However, Friday marked the end of winning streaks for the Dow Jones Industrial Average (-0.2% to 31,338) and S&P 500 (down marginally to 3,899).
Other news in the stock market today:
- The small-cap Russell 2000 was marginally lower to 1,768.
- U.S. crude oil futures gained 2% to end at $104.79 per barrel, but still finished the week down more than 3%.
- Gold futures edged up 0.2% to close at $1,742.30 an ounce. For the week, gold futures gave back more than 3%.
- Bitcoin also finished with a tiny gain, of 0.1%, to $21,811.80. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- Twitter (TWTR) fell 5.1% after a report in The Washington Post on Thursday suggested Tesla (TSLA, +2.5%) CEO Elon Musk’s plans to buy the social media platform for $44 billion could fall through. Citing people familiar with the matter, the article said Musk’s team has pulled back on talks with investors in recent weeks amid concerns over an unverified number of spam accounts on Twitter. “We believe the chances of a deal ultimately happening are currently at ~60% with a renegotiated bid at a lower price likely in the $42-$45 range due to the fake account issue,” says Wedbush analyst Dan Ives, who has a Neutral (Hold) rating on TWTR stock. “There is still a ~35% chance Musk decides to walk away from the deal, try to pay the $1 billion breakup fee, and likely end up in a nasty court battle with Twitter’s Board for the coming months.” As for the current bid of $54.20 per TWTR share, Ives says that is “essentially out the window” at this point.
- Upstart Holdings (UPST) was one of the biggest decliners on the Street today, shedding 19.7% after the consumer lending firm last night lowered its second-quarter revenue guidance, now expecting sales to arrive around $228 million compared to its previous forecast of $295 million to $305 million. UPST also said its quarterly net loss will range from $27 million to $31 million, wider than its prior guidance for a loss of $4 million to $0 million. In a press release, Dave Girouard, co-founder and CEO of Upstart, pointed to “inflation and recession fears” that have driven interest rates up and put banks and capital markets on cautious footing.” Wedbush analyst David Chiaverini maintained an Underperform (Sell) rating on UPST stock. “The company has yet to operate through a true recession which means its underwriting model has yet to be battle-tested,” the analyst says. “We fear that weakening delinquency and loss trends combined with macro- and geopolitical risks could lead to waning appetite from Upstart’s credit buyers and the securitization market.”
What Do Q2 Earnings Have in Store?
Coming up next week: the start of a pivotal second-quarter earnings season. The earnings calendar will kick off with reports from the likes of Delta Air Lines (DAL), JPMorgan Chase (JPM) and UnitedHealth Group (UNH). And despite Friday’s encouraging employment news, a broader cadence of data pointing toward an eventual recession has some gloomy about the coming earnings season.
Lindsey Bell, chief markets and money strategist for Ally Invest, isn’t necessarily one of them.
“There are plenty of reasons to be cautiously optimistic heading into what could be a volatile Q2 earnings season,” she says. “Several companies have already cut profit outlooks while others have hinted at the broad economic backdrop being not so bad. With estimates having been reduced in some key sectors and stock prices down big from earlier this year, the bar might be low enough to spark a near-term rally.”
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This is Senior Investing Editor Kyle Woodley, letting you know it’s my final day with Kiplinger. I’m extremely grateful for getting to serve Kiplinger readers for the past few years, and I wish you both good health and good fortune.