Summary

The Dow Jones Industrial Average ended at its eighth straight record high on Friday, with gains in JPMorgan Chase and other banks after data indicated that more jobs than expected were created during the month of July.

The strong jobs report is likely to clear the way for the Federal Reserve to announce a plan to start shrinking its $4.2 trillion bond portfolio in September, and could strengthen its case to raise rates for the third time this year in December.

According to the report released by the Labor Department on Friday, nonfarm payrolls increased by 209,000 jobs last month, above the 183,000 rise expected by economists polled by Reuters.

With banks standing to benefit from higher interest rates, the S&P financial index rose 0.72 percent. Goldman Sachs rose 2.59 percent and was the top contributor to the Dow’s gain for the day.

Perceived chances of an interest rate hike by the Fed by the end of the year increased to 50 percent from 46 percent after the release of the data, according to CME Group’s FedWatch tool.

The current consensus is that S&P 500 earnings are up 12 percent in the second quarter and they project earnings up 9.3 percent for the September quarter, according to Thomson Reuters I/B/E/S.

For the week, the Dow is up 1.2 percent, the S&P 500 rose 0.2 percent and the Nasdaq fell 0.4 percent.

The S&P 500 materials index rose 0.48 percent, helped by a 1.07-percent rise in Dow Chemical.

The utilities, healthcare and consumer staples indexes fell. Gilead’s 1.63 percent decline and Allergan’s 3.08-percent loss weighed on the healthcare index.

Disney ended the trading day down 1.31 percent and was the biggest drag on the Dow.

Viacom fell 13.83 percent after the company forecast a low single-digit dip in sales.

Yelp rose 27.67 percent after the company said it would sell its Eat24 business to Grubhub for $287.5 million and reported a better-than-expected quarterly revenue. Grubhub rose 9.20 percent.

Approximately 6.0 billion shares changed hands on the major domestic equity exchanges, a number that was just below the 6.1 billion share average over the past 20 trading sessions.

Jobs Report is Strong

Employers hired more workers than expected in July and raised their wages, signs of labor market tightness that likely clears the way for the Federal Reserve to announce a plan to start shrinking its massive bond portfolio.

A report released on Friday morning by the Labor Department indicated that nonfarm payrolls increased by 209,000 jobs last month amid broad-based gains. June’s employment gain was revised up to 231,000 from the previously reported 222,000.

Average hourly earnings increased nine cents, or 0.3 percent, in July after rising 0.2 percent in June. That was the largest rise in five months. On a year-on-year basis, wages increased 2.5 percent for the fourth straight month.

Although the economy is near full employment, wage growth has not been strong in part because many of the jobs being created are in low-wage sectors. Last month, restaurants and bars added 53,100 jobs.

July’s monthly increase in earnings could, however, offer Fed policymakers some assurance that inflation will gradually rise to the U.S. central bank’s 2 percent target.

The Fed will likely announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its next policy meeting in September. The Fed bought these securities to lower interest rates in the wake of the 2007-2009 financial crisis.

Sluggish wage growth and the accompanying benign inflation, however, suggest the Fed will delay raising interest rates again until December. It has increased borrowing costs twice this year and its benchmark overnight interest rate is in a range of 1 percent to 1.25 percent.

Wage growth is crucial to sustaining the economic expansion after output increased at a 2.6 percent annual rate in the second quarter, an acceleration from the January-March period’s pedestrian 1.2 percent pace.

A report on Friday indicating a sharp decline in the trade deficit during June also helped out Friday’s trading activity.

The unemployment rate fell one-tenth of a percentage point to 4.3 percent in July, matching a 16-year low touched in May. It has declined five-tenths of a percentage point this year and is now at the most recent Fed median forecast for 2017.

July’s decline in the jobless rate came even as more people entered the labor force, underscoring job market strength.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose one-tenth of a percentage point to 62.9 percent. The share of the population that is employed climbed to 60.2 percent, matching an eight-year high touched in April.

A broad measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, was unchanged at 8.6 percent last month. This alternative gauge of unemployment hit a 9-1/2-year low in May.

Monthly job growth this year has averaged 184,000, close to the 2016 average of 186,000. The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.

Manufacturing payrolls advanced by 16,000 jobs in July, the largest gain since February. Employment in the automobile sector rose by 1,600 despite slowing sales and bloated inventories that have forced manufacturers to cut back on production.

Auto sales fell 6.1 percent in July from a year ago to a seasonally adjusted rate of 16.73 million units. General Motors and Ford have both said they will cut production in the second half of the year.

Construction payrolls rose 6,000 last month as hiring at homebuilding sites increased 5,100. The professional and business services sector added 49,000 workers last month.

Retail employment rose by 900 as hiring at motor vehicle and parts dealerships as well as online retailers offset a drop of 10,000 in employment at clothing stores.

Companies like major online retailer Amazon are creating jobs at warehouses and distribution centers. Amazon this week held a series of job fairs to hire about 50,000 workers.

Government payrolls rose by 4,000 in July.

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