S&P500 and Nasdaq at New Highs: 'A Real Surge of Irrational Euphoria'

New York Stock Exchanges Set New Records in Strong Style all-time high after a very weak job report. In the meantime, the table I think the topic of the July interest rate cut has definitely fallen Federal Reserve.

New day, new record . The S&P500 index broke the record for the second time in a row of all time after last Friday it finally cracked the February high . Benchmark ended the week at 6,279.35 points, up 0.83%. Independence Day is a day off on Wall Street. In turn, Thursday's session was shortened by three hours.

The Nasdaq Composite also set a new high, rising by 1.02%, reached 20,601.10 points. No new record yet The Dow Jones Industrial Average remains, up 0.77% on Friday and reached a value of 44,828.53 points. The record is only 245 points away. points.

The highlight of the investment program was the transfer from Friday monthly data from the American labor market . You have to take it to be clear: objectively, it was a very weak report. Employment in the private sector increased by only 74 thousand positions, with the market consensus around 105 thousand and 137 thousand recorded a month earlier. In addition, unexpectedly the average working time decreased (from 34.3 to 34.2 hours per week) and the average Hourly earnings increased less than expected (0.2% MoM vs. 0.3%).

But investors preferred to think that the glass was half full. full, not almost empty. The June "payrolls" were saved by the fact that the total the change in employment in non-agricultural sectors amounted to 147 thousand positions, i.e. significantly more than the median of economists' forecasts of 110 thousand and slightly more than the already poor result for May (+144 thousand after upward revision). However, economists' forecasts were very low and ranged between 50,000 and 160,000 new jobs.

However, even taking into account these lowest numbers, these were they are close to the actual result. This is because they are a bit artificial (probably due to seasonal adjustment issues) the BLS report showed a jump an increase of 63,000 jobs in state and local education. Without this statistical imp we would only get +84 thousand positions and then the report would probably would be described as "weak".

The surprising drop in the unemployment rate was also welcomed, which fell from 4.2% to 4.1%. This is a small sensation, because the market consensus assumed its increase to 4.3%. However, if we look at the data, the decrease in the rate unemployment was not due to the increase in the number of employed persons (by 93 thousand), but to the increase the number of economically inactive people (+329 thousand). Apparently, some of the unemployed (a decrease of 222 thousand) became discouraged with the job search and joined the ranks economically inactive. And this is probably not good news.

But you can't argue with the market. Since it was decided that the June "payrolls" were good, that's what they were. - The biggest implication of the employment report it seems that there is no way the Fed will cut interest rates in July and the question is whether interest rates will be cut at all this year - Jed Ellerbroek, portfolio manager at Argent, told CNBC Capital Management. And indeed: chances of a July Fed rate cut have been virtually zeroed out – at least that's what FedWatch's calculations show Tool. The market valuation of the September cut was reduced from almost 94% to less than 65%.

This is interesting because the prospect of higher interest rates is not good news for stock valuations. So you can see how strange it was Wall Street's reaction on Thursday. The dollar, on the other hand, behaved in a textbook manner, intensively made up for recent losses. The debt market also reacted "improved", where there was a strong (almost +10 bp.) increase in 2-year US government bonds. Gold also fell in price, down almost 1%. Everything is correct, except growth on the stock market.

- We are seeing a real surge of irrational euphoria. The stock market is tilted towards optimism, Kristina Hooper pointed out, the chief executive of New York's Man Group, quoted by Reuters. Hooper She added, however, that there were concerns that the labor market report would be even worse.

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