Stocks slipped for the second straight day, and posted their worst weekly loss since in two years, as the July jobs report came in a bit below expectations and the unemployment rate ticked up to 6.2% from 6.1%. After yesterday's sharp sell-off, stocks again sank during the morning, but pared some of these losses through the afternoon.
First, the scoreboard:
- Dow: 16,493.37, -69.93, (-0.4%)
- S&P 500: 1,925.15, -5.5, (-0.3%)
- Nasdaq: 4,352.64, -17.1, (-0.4%)
And now, the top stories on Friday:
1. The S&P 500 finished the week down 2.6%, its worst performance since June 2012. The Dow Jones Industrial Average declined by the same amount, and has now virtually wiped out its 2014 gains. “Whether it’s the Portuguese bank, Argentina or continued unrest in the Middle East, these things are seemingly mattering more to investors now,” Matt McCormick, who helps oversee $11 billion as a fund manager at Cincinnati-based Bahl & Gaynor Inc., told Bloomberg. “All of a sudden, geopolitical things that didn’t matter a few weeks ago are starting to be more relevant concerns, and they’re serving as catalysts to sell. Investors are getting more risk-averse.”
2. The July jobs report showed the U.S. economy added 209,000 nonfarm payrolls, fewer than the 230,000 that was expected by economists as the unemployment rate rose to 6.2% from 6.1%. Average hours worked were unchanged at 34.5 in July, and wage growth also remained tepid, staying flat over the prior month and growing 2% over the prior year, below expectations for 2.2% growth. Following the report, Dean Maki at Barclays said, "Overall, we view this report as consistent with a return to more moderate job growth in Q3 after the Q2 surge."
3. The July jobs report also marked the sixth-straight month that the economy added 200,000 or more jobs, marking the first such stretch since 1997. Chris Rupkey, chief economist at Bank of Tokyo Mitsubishi UFJ said, "Quite a milestone today in terms of the number of nonfarm payroll jobs the economy is creating. Six months in a row of big 200K or more monthly numbers. The labor market is strong."
4. A number of Wall Street economists weighed in on how the report could impact the Federal Reserve's policy going forward. Dean Maki at Deutsche Bank said, "The slower pace of job growth, the rise in the unemployment rate, and the flat reading on the headline average hourly earnings series all point to slightly less pressure on the Fed to raise rates soon than recent readings might have suggested. Still, we remain comfortable with our view that the Fed will first hike rates in June 2015." Drew Matus at UBS said following the report that, "Oddly, the slight increase in the unemployment rate was likely welcome news within the Federal Reserve would have pressured their policy outlook." Overall, the report likely didn't pressure the Fed's policy.
5. The Bureau of Economic Analysis released its latest personal income and outlays survey, which contains the personal consumption expenditures index, the Federal Reserve's preferred measure of inflation. "Core" PCE, which excludes food and energy, rose 1.5% in June against the prior year, but was flat when compared to the prior month. "The acceleration in US income growth in June suggests that in the second half of the year annualized consumption growth will rise from the average of 2.3% of the past two years to close to 3%," Capital Economics said.
6. In addition to the jobs report, two manufacturing indexes came in mixed. Markit's July PMI came in at 55.8, below expectations for a 56.5 reading and below June's 56.3. Following the report, Markit's chief economist Chris Williamson said, "July data pointed to continued strong growth of production levels and incoming new business across the U.S. manufacturing sector, although the latest survey indicated some loss of momentum since the previous month. Employment growth also moderated during July, and was the weakest in the current 13-month period of workforce expansion." The Institute for Supply Management's latest manufacturing report, however, came in better than expected at 57.1 beating expectations for 56.0 and topping June's 55.3. The prices paid subcomponent of the ISM report also beat expectations, rising to 59.5 from June's 58.0 and the 58.0 expected by economists.
7. The University of Michigan's consumer sentiment survey for July slipped to 81.8 from 82.5 in June, though this reading was in-line with expectations. "Overall, today’s report shows consumer sentiment in the same narrow range where it has remained so far this year, but well below readings seen during the housing bubble," said Barclays' Dean Maki. "Thus, it remains consistent with continued moderate growth in consumer spending."
8. The Census Bureau also released its latest construction spending report, which showed construction spending in June totaled $950.2 billion annualized, 1.8% below May's revised estimate of spending at a $967.8 billion pace.
9. In stock news, Tesla shares gained 5% after the electric car maker on Thursday reported earnings and revenue that beat expectations, and said it now plans to deliver 100,000 next year, up from a goal of 35,000 this year. In a note to clients following the announcement, Barclays said this announcement, "provides us some insight into Tesla’s expectations for a quite steep delivery ramp-up over the coming years and into the Model 3 era."
10. Home products giant Procter & Gamble saw shares 3.4% after announcing that it would seek to unload up to 100 of its brands, as the company reported revenue that fell 1% to $20.16 billion, missing analysts' estimates. P & G's earnings per share, however, beat expectations as the company was the biggest gainer in the Dow Jones Industrial Average.
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