Pre-Market Rise on Better-than-Expected July Job Report

By Zehan Yu

Philadelphia–Pre-market rallied last Friday morning after the release of a strong US employment report which showed 209,000 jobs were created in July, beating economists’ expectations.

The unemployment rate fell to 4.3%, matching a 16-year low. Job gains were bolstered by a jump in leisure and hospitality employment while hiring in manufacturing and education and health sectors reached five-month highs.

“The labor market remains very solid and prospects remain very positive,” Ward McCarthy, chief financial economist at Jefferies LLC in New York, wrote in a research note ahead of the release. “The private sector continues to have a very high level of job openings and is approaching full employment across the skill set spectrum.”

With the Dow Jones Industrial Average standing above the 22,000 level, US equity markets saw little movement last Thursday ahead of the closely watched US employment report. The Dow rose 9.86 points, or 0.04%, to close at 22,026.1, and the NASDAQ and S&P 500 dipped 0.35% and 0.22% respectively. Awaiting the job report to be released this morning, global investors were looking for clues on economic outlook and future policy move.

The Dow has in fact continued to rally since President Trump was elected the President of the United States on November 8th, 2016, climbing 20% from 18,250 to 22,026.1. Bespoke Investment Group noted that the S&P 500 hasn’t suffered a downturn of 5% or more since June 26, 2016 for 402 calendar days – the seventh longest streak in history. The rally hasn’t been just long, but steady. The closely watched VIX volatility index touched an all-time low last week.

“Markets are rarely ever this calm for long,” Ryan Detrick, senior market strategist at LPL Financial, wrote in a report.

In addition, investors have high hopes as more companies are going to release their corporate earnings.

However, this does not mean the market will rally with no uncertainties. Geopolitical risks such as the on-going investigation into the alleged Russian interference in the US 2016 presidential election, as well as mounting tension between the US and North Korea, will continue to weight down global markets. Asian markets were mixed last Thursday. Japan’s TOPIX was down by 0.3%, Australia’s S&P/ ASX 200 index fell 0.2%, while stock markets in Korea and Hong Kong edged up by 0.5% and 0.2% respectively.

Kristina Hooper, global market strategist at Invesco, compared recent geopolitical events to paper cuts. He wrote in a recent report that “Individually, the market can brush them off. But a significant accumulation of paper cuts over a short period of time might cause investors to suffer.”

Moderate pullbacks can be healthy. It will prevent markets from overheating and provide opportunities for investors to get in.