Stocks could look right past the weak jobs report and focus on strong profits


Traders on the floor of the New York Stock Exchange, June 18, 2021.

Source: NYSE

After a weak jobs report, strategists say investor focus may stay on strong profit growth rather than other potential negatives.

Stocks were mixed in the past week ahead of the long Labor Day weekend, with the Nasdaq outperforming, the S&P 500 rising slightly and the Dow flat. The best-performing sectors were on the defensive side, led by real estate investment trusts, utilities, consumer staples and health care.

“You’ve got this Labor Day effect. People are back from vacation” in the coming week, National Securities chief market strategist Art Hogan said.

Hogan said investors expect the trading activity to pick up as a result, but it typically remains slow in the holiday shortened-week. Investors may assess their summer performance and move to lock in gains or add hedges.

“If you look back at the last five post-Labor Day weeks that have happened with the market near all-time highs, the post Labor Day week is the worst for September,” Hogan said.

Friday’s disappointing August jobs report — with just 235,000 jobs added — was a dampener for sentiment, but stocks were mixed.

“My outlook for the last several weeks is sideways to moderately higher, and that seems where they’re headed. There isn’t a lot of bearish data accumulating. At worst we go sideways,” said Randy Frederick, Charles Schwab managing director of trading and derivatives.

Frederick said even with worries about the weaker jobs and Covid,-19 investors may continue to focus on profits. Economists blamed the spread of the Covid delta variant for the weaker than expected jobs report.

Strategists say other issues for stocks in September could include the efforts in Congress to pass infrastructure legislation and possible new taxes.

Ignoring jobs report

Weekly jobless claims data Thursday could be even more important than usual because of the big miss in August’s employment report. Jobs data is important because that is one area where Federal Reserve Chairman Jerome Powell said he would like to see more improvement before the central bank can decide to slow its bond purchases.

The market has been fixated on the Fed’s move to end its $120 billion a month bond-buying program because it is viewed as a precursor to interest rate hikes. However, Powell has stressed the two are not linked.

“If feels like [the jobs report] pushes the announcement of a taper to the November meeting, rather than the September meeting, and for the most part that was consensus,” Hogan said.

Hogan said the market will also be watching any inflation-related data, so that makes Fridays’ producer price index important after it surged last month. The consumer price index, released the following week, will be even more important for the market.

NatWest Markets head of macro strategy John Briggs said the markets will be watching for any Fed-related headlines after the disappointing employment report.

“Next week, you have [New York Fed President John] Williams speaking. His take will be important. He’s viewed as being close to Powell,” Briggs said. Williams is set to speak Wednesday at a briefing on the economy.

What’s next for stocks

Week ahead calendar

Monday

Labor Day holiday

Tuesday

Earnings: Coupa Software, Casey’s General Store

10:00 a.m. Quarterly Financial Report

Wednesday

Earnings: Korn Ferry, Lululemon Athletica, GameStop, AeroVironment

7:00 a.m. Weekly mortgage applications

10:00 a.m. JOLTS

1:10 p.m. New York Fed President John Williams

2:00 p.m. Fed’s Beige book

6:00 p.m. Dallas Fed President Robert Kaplan town hall

Thursday

Earnings: Hovnanian Enterprises, American Outdoor Brands, Sumo Logic, Zscaler, Verint Systems, Dave & Buster’s

8:30 a.m. Jobless claims

10:00 a.m. Q2 Quarterly services

11:05 a.m. Chicago Fed President Charles Evans

2:00 p.m. Dallas Fed’s Kaplan, Boston Fed President Eric Rosengren and Minneapolis Fed President Neel Kashkari

Friday

Earnings: Kroger

8:30 a.m. PPI

10:00 a.m. Wholesale trade



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