Baker Market Update – wk210806

Treasuries yields edged slightly higher across the curve this week as the 10-Year UST Note sits at 1.28% from 1.17%, Monday’s close. These levels may look familiar as the 10Yr yield has bounced between 1.2 and 1.4% over the last month of trading. Equity markets look to end the week higher as all of the major indices (Dow/S&P/NASDAQ) are .5 to .7% higher for the week. On the economic data front, the week saw key economic releases such as the ISM Manufacturing and Services Surveys along with monthly BLS Julys Jobs report.

On Tuesday, the ISM Manufacturing release for July indicated a second month of slow down as raw material shortages persist and supply chains are strained. Falling 1.1 points to 59.5, in contrast to an estimate for an increase 61.0, this was the lowest reading since January of this year. The results did show some encouraging pickup in employment figures which was later reinforced by the jobs report on Friday.

Wednesday gave us the ISM Services release which improved an impressive 4 points to 64.1 versus a consensus projection of 60.0. The latest results showed an encouraging pickup in activity and orders however also that input costs continue to remain at extreme levels along with inventory contraction.

All Eyes on Jobs Friday

The unemployment report for July as well as the upward revisions to June’s numbers indicate that employment growth could be accelerating as labor slack eases up. In June, non-farm payrolls increased 943k and the unemployment fell to 5.4% versus expectations of 5.7%. Wage growth accelerated to 4% year-over-year, also better than expected. While labor force participation still remains stubbornly weak since the beginning of the pandemic, it ticked up .1% to 61.7%. Recently, FOMC Board members Richard Clarida and Christopher Waller have discussed a run of stronger jobs reports could be enough to reach the “substantial further progress” and could line up for further discussion at the Kansas City’s Federal Reserve Jackson hole Summit later this month.

Olympics Update

While viewership may be down, US Olympic medals are up. As it stands, the United States leads all countries with 98 total medals won for the games (31 in Gold). Kevin Durant and the US Men’s Basketball team will play France for the Gold tonight at 9:30pm CT. GO USA!

Next week brings another slew of economic data as the BLS Job Opening and Labor Turnover Survey (JOLTS) report will be released on Monday followed by key inflation indicator CPI on Wednesday and Michigan’s Consumer Sentiment Survey on Friday. Have a great weekend!

The Fed’s Summary of Economic Projections indicate that the median unemployment rate will not lower to 3.5% until 2023. Before the pandemic began, there were approximately 132mm people in the labor force, today there is only 127mm.

US Unemployment Rate (January 2019 to Today)

Source: Bloomberg LP

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information
The Baker Group Matt Harris, CFA

Matt Harris, CFA

Senior Vice President/Assistant Director of Asset/Liability Management
The Baker Group LP

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.