On a July afternoon in 2021, the American labor market showed a stronger pulse than economists had dared to expect, adding 850,000 jobs in June and carrying the world's largest economy into the second half of the year with momentum. Yet the figures carried their own shadow: unemployment edged up, and the nation still stood about 6.8 million jobs short of where it had been before the pandemic arrived. Investors, sensing both recovery and risk, pushed stocks toward record heights while bond yields softened, as though the market were quietly asking how long the Federal Reserve could keep its pati
Stocks Climb and Bond Yields Fall as U.S. Payrolls Beat Forecasts, Sparking Fed Worries
Enough jobs to cheer, not so many that the Fed has to hurry.
Mark
Why did a strong jobs number make bond yields fall? That seems backwards.
Mimi
The story says investors were worried about how the Fed would respond. Yields fell even as stocks hit records, so the market was split between celebrating growth and fretting about policy.
Luke
Careful, though. The report ties the yield drop to Fed worries, but in Europe it ties it to COVID-19 fears. Those are different explanations, and the piece doesn't prove either one drove U.S. yields.
Mark
What did the jobs report actually show?
Mimi
850,000 jobs added in June against a forecast of 700,000, and 583,000 in May. But unemployment rose to 5.9% from 5.8%.
Mark
So is the labor market healed?
Mimi
Not yet. Employment is still about 6.8 million below its February 2020 peak, though there are a record 9.3 million openings.
Luke
That's the number I'd hold onto. Openings and missing jobs sit side by side, and the report doesn't explain why they aren't matching up.
Mark
And the inflation argument?
Mimi
Lawrence Summers warns that fiscal spending will cause inflation not seen in a generation. Others say it's unlikely until wage pressure returns.
Luke
Those are opinions, not data. Nothing here settles who is right, and Cronk's Goldilocks line is one strategist's read of the day.
Il Polso
- Payrolls beat the 700,000 forecast with 850,000 new jobs, sending the S&P 500 and Nasdaq to record highs.
- Unemployment ticked up to 5.9%, and roughly 6.8 million jobs remain missing from the pre-pandemic peak, cracking the celebration.
- Traders are racing to price whether surging growth will force the Federal Reserve to tighten policy sooner than planned.
- Bond yields slid and the dollar retreated from a three-month high, while rising COVID-19 cases in Europe pulled sentiment back toward caution.
- Inflation fears, from warnings about massive fiscal spending to oil prices at 2-1/2 year highs, keep the rally tense and unsettled.
On a July afternoon in 2021, the American labor market showed a stronger pulse than economists had dared to expect, adding 850,000 jobs in June and carrying the world's largest economy into the second half of the year with momentum. Yet the figures carried their own shadow: unemployment edged up, and the nation still stood about 6.8 million jobs short of where it had been before the pandemic arrived. Investors, sensing both recovery and risk, pushed stocks toward record heights while bond yields softened, as though the market were quietly asking how long the Federal Reserve could keep its patience. It was a moment of hope held in careful balance, one of many in which an economy stumbles back toward normal and everyone watches the steps.
On Friday, July 2, 2021, the United States released a jobs report that surprised almost everyone on the upside. Employers added 850,000 positions in June, well above the 700,000 Reuters had forecast, and the gain came on top of May's solid showing. For the world's largest economy, it was a strong close to the second quarter.
The headline came with a quieter truth. Unemployment rose to 5.9% from 5.8%, and the workforce still sat roughly 6.8 million jobs below its February 2020 peak. Even so, a record 9.3 million openings suggested employers were hungry to hire.
Markets responded with enthusiasm. Global stocks climbed, and on Wall Street the S&P 500 and Nasdaq both closed at records. Darrell Cronk of Wells Fargo called the report a Goldilocks moment: strong enough to encourage, but not so strong that the Federal Reserve would feel forced to act early.
Beneath the optimism ran a current of unease. U.S. Treasury yields fell as investors wondered how the Fed would respond to a rapidly healing economy, and European yields dropped as COVID-19 cases climbed again. The dollar eased, gold edged up, and the old argument about inflation resurfaced, with some warning of a surge from massive fiscal spending and others insisting wages must rise first.
Oil told a similar story of tension. OPEC+ returned to the table after the United Arab Emirates blocked a deal, and the standoff threatened to delay the supply increases meant to cool prices at multi-year highs. The question hanging over the week was simple to state and hard to answer: would this strength in hiring push the Fed to tighten sooner?
On Friday, July 2, 2021, the U.S. government's monthly jobs report came in stronger than expected, and markets around the world responded by moving higher. Nonfarm payrolls rose by 850,000 in June, up from a gain of 583,000 in May. Economists polled by Reuters had forecast 700,000. The report gave the second quarter a strong finish for the world's largest economy.
The headline number came with a caveat. The unemployment rate rose to 5.9% from 5.8% the month before. U.S. employment also remains about 6.8 million jobs below its peak in February 2020, even as a record 9.3 million positions sit open.
Stocks did not dwell on that. The MSCI All Country World index gained 0.42%, and Europe's pan-European STOXX 600 rose 0.26%. On Wall Street, the S&P 500 and the Nasdaq both closed at record highs. The Dow Jones Industrial Average rose 150.8 points, or 0.44%. The S&P 500 gained 28.35 points, or 0.66%, and the Nasdaq Composite added 98.23 points, or 0.68%.
Darrell Cronk, chief investment officer at Wells Fargo wealth and investment management, called it a Goldilocks report for both equities and bonds. In his words, it was perfect: enough jobs to be encouraging, but not so many that people worry the Federal Reserve will have to act sooner.
Yet U.S. bond yields fell, a reflection of investors' unease about how the Fed might respond to a rapidly recovering economy. The benchmark 10-year yield fell 1.43%. In Europe, government bond yields also fell, as fears over rising COVID-19 cases outweighed the strong American data. Germany's 10-year yield, the euro zone benchmark, dropped to -0.24%, its lowest since mid-June.
Currency and metals markets showed the same cross-currents. The dollar slipped from a three-month high, pressured by the weaker details in the payrolls report. The dollar index fell 0.375 points, or 0.4%, to 92.222. The Japanese yen was last down 0.39%, at 111.06 to the dollar. Gold edged higher as investors weighed the chance of tighter Fed policy; spot gold rose $4.71, or 0.27%, to $1,781.31 an ounce.
Behind the caution is a debate over inflation. Investors remain nervous that a sharp rebound from the pandemic could push prices up to a level uncomfortable for the Fed. Former Treasury Secretary Lawrence Summers has said massive U.S. fiscal spending will set off inflationary pressures not seen in a generation. Others argue that a return to 1970s-style inflation is unlikely until wage pressures return in force.
In energy, OPEC+ resumed talks on raising oil output a day after the United Arab Emirates blocked a deal. The standoff could delay plans to pump more oil through the end of the year to cool prices that have climbed to 2-1/2 year highs. Oil ended the week mixed: Brent crude settled up 33 cents, or 0.44%, while U.S. crude settled down 7 cents, or 0.09%.
What to watch now is whether the strength in hiring and growth pushes the Fed toward tightening sooner, with inflation worries and rising COVID-19 cases in Europe pulling in opposite directions.
Citazioni salienti
For capital markets, this was a Goldilocks report: enough jobs to be encouraging, but not so many that the Fed may have to act sooner.— Darrell Cronk, chief investment officer, Wells Fargo wealth and investment management
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Economy & Finance