The S&P 500 has recovered from its early summer swoon and is currently trading midway between the high and low print for the last year, supported by the two most recent economic wayposts. The July employment report and the consumer price index (CPI), were both better than investors had forecast, indicating that the Fed may not need to be as aggressive in tightening policy as thought just a month ago.
Following a mixed June employment report, the July tally blew past all expectations. Coming in at 528,000 new jobs added, the report more than doubled the consensus expectation of 250,000 and exceeded the highest expectation of 325,000. Moreover, the details were equally eye popping, with average hourly earnings up 5.2%, year-over-year, and the unemployment rate ticking down to 3.5%, equaling the low touched on September 2019. The bond market didn’t like any of it. The yield curve that placidly drifted below 3% recently, convulsed back above that measure on the day. Month to date, the 2-year note is 30 basis points higher, and the 2-year/30-year interest rate spread went negative for the second time this year.