B y Joy Wiltermuth and Mark DeCambre
Jobs data in focus as the Fed mulls tapering monthly bond purchases
U.S. stock benchmarks traded higher Thursday, with the S&P 500 index and the Nasdaq touching fresh record territory, as jobless benefit claims data showed continued slight improvement in the labor market ahead of Friday’s August employment report.
How are stocks trading?
The Dow fell 48 points on Wednesday to close at 35,312, while the S&P 500 ended above flat and the Nasdaq Composite outperformed, rising 0.3%.
What’s driving markets?
Stocks gained altitude on Thursday after weekly initial jobless benefit claims dropped by 14,000 to 340,000 in the week ended Aug. 28, the Labor Department reported Thursday.
The upbeat action comes ahead of Friday’s August employment report, which will give markets their next chance to guess when — and by how much — the U.S. Federal Reserve will begin slowing, or tapering, its program of $120 billion in monthly bond purchases.
“The jobs report is going to be big; it’s always big,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management, in a phone interview, adding that a weak payroll report could potentially delay tapering of the central bank’s large-scale purchases, but that’s not the only thing on investors’ minds.
“We know the Fed is going to taper. There’s no doubt about it,” Pavlik said. “What we don’t know is by how much. That’s the question.”
Oxford Economics’ economists Nancy Vanden Houten and Gregor Daco said they expect jobless claims to continue improving, but will be watching to see if businesses and workers have become more cautious due to the spread of the coronavirus from the delta variant, in a research note.
Fed Chairman Jerome Powell has signaled that the central bank would be watching employment data as it mulls the end of its pandemic-era measures to add liquidity to markets.
Also read: Fed chair Powell says he supports starting to taper bond purchases this year
On Wednesday, weak numbers from payroll provider ADP’s private-sector employment report and the Institute for Supply Management’s measure of factory jobs underscored the room the U.S. economy still has to grow in terms of employment.
“Not a great indicator for Friday’s nonfarm payrolls and this would potentially give the Fed more rope to delay the taper,” said Neil Wilson, an analyst at Markets.com, in a daily research note.
“If data keeps getting worse, or less good, rather, then you can see the FOMC start to voice concerns at the [September] meeting and we could be in a position where the US central bank actually doesn’t taper asset purchases this year,” Wilson wrote.
Beyond the Fed, investors were also looking past the economic devastation tied to Hurricane Ida, pegged as the most expensive ever, which made landfall in Louisiana over the weekend, before triggering a state of emergency in New York City and New Jersey early Thursday due to flooding, while also threatening New England with more tornadoes.
“I think there’s still some trepidation about what September and October hold,” Pavlik said. “September often is a very hard month for the stock market, and I think that’s on the back of peoples’ minds.”
Should a correction hit stocks, Pavlik thinks investors will buy, since many have been “waiting for bargains,” similar to how shoppers wait for Labor Day and the Thanksgiving holiday sales before buying a new refrigerator or other large appliances.
In economic data, U.S. factory orders rose 0.4% in July, as manufacturers worked to pump out more goods to keep up with high demand. Economists surveyed by the Wall Street Journal had forecast a 0.3% increase.
U.S. productivity also rose at a revised 2.1% annual pace in the second quarter, a bit lower than the government’s previously reported 2.3% rise from April to June, while a new report showed the U.S. international trade deficit falling from a record high, notching a decline of 4.3% in July to $70.1 billion.
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Jack Denton contributed reporting
-y Joy Wiltermuth
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