S&P and Dow close at record highs after strong jobs report

Week from 2 to 8 August 2021

The most widely followed indexes in the U.S. notched fresh highs after the July employment report confirmed that the U.S. economy continued to recover at a healthy clip. 943,000 jobs were created last month, beating forecasts for 845,000, while the unemployment rate fell from 5.9% to 5.4%. The S&P 500 added 41.26 points, or 0.94% week-over-week, to 4,436.52. The blue-chip Dow Jones Industrial Average rose 0.78%, or 273 points, to 35,208.51. The Nasdaq composite gained 1.11% (14,835.76) although tech stocks showed weakness on Friday, as rising U.S. Treasury yields weighed on the sector.

On the old continent, stocks rallied as the manufacturing activity across the eurozone continued to expand at a fast pace in July (MSCI EMU up 2.19%). In Asia, Chinese stocks recouped some of their recent losses (Shanghai composite up 1.79%) after last week’s sell-off caused by Beijing's regulatory crackdown. The other Asian markets performed in unison (Japan’s Nikkei: +1.97%, Korea’s Kospi: +2.12%, FTSE TWSE Taiwan 50: +1.62%).

Bank stocks in demand

The better-than-expected monthly jobs report lifted cyclical stocks, as it highlights the strength of the reopening and recovery trend. Against this backdrop, the financial sector was the best performer of the week (+3.56%). Higher interest rates prompted strong gains in Wells Fargo (+6.62%), Goldman Sachs (+6.14%) and JP Morgan (+3.76%). Despite the sharp fall in oil prices (worst weekly decline since October 2020 with WTI crude down 7.67%), energy remained above the flatline (+0.32%). Yet U.S. stockpiles increased 3.6 million barrels during the last week of July. All the S&P sectors except one (consumer staples: -0.55%) finished the week in positive territory.

End of bond rally, firmer dollar 

U.S. Treasury yields rebounded after Fed Vice Chair Richard Clarida said he felt the conditions for raising interest rates could be met by the end of 2022. The benchmark 10-year yield closed at +1.30% (+6bps over the week) but core European benchmark yields remained virtually unchanged (10-year Bund at -0.46%).

The trend reversal pushed U.S. investment grade corporate bond prices lower (-0.66%) while their European counterparts were almost flat (-0.01%). High-yield bonds closed mixed (+0.27% in Europe, -0.14% in the U.S.). Emerging debt did not hold last week’s gains (-0.88% in local currencies) as the greenback strengthened against a basket of major currencies (dollar index up 0.66%). The firmer dollar also weighed on gold, with the spot price down 2.82%.

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