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A milestone jobs report sent stocks lower on Friday as it sparked concern the Fed will stay aggressive with its rate hikes. 
Ahead of the opening bell, the Labor Department said the U.S. economy added 528,000 new jobs in July, more than double what economists were expecting. The U.S. has now recouped all 22 million positions lost in the early months of the pandemic. Also in the report: The unemployment rate fell to 3.5%, a level not seen since February 2020, while average hourly earnings were up 0.5% month-over-month and 5.2% year-over-year.
"Job gains were broad-based and especially prominent in sectors such as education, healthcare and government," says Jeffrey Roach, chief economist for independent broker-dealer LPL Financial. "Given the stability in the job market, especially considering rising borrowing costs and higher inflation, we do not expect the National Bureau of Economic Research (NBER) to call a recession at this point. The labor market is strong enough to offset the weaknesses in other parts of the economy such as real estate."
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"This reading is positive for economic growth and households," says Tim Courtney, chief investment officer at investment firm Exencial Wealth Advisors. "It should support consumer spending moving forward. While that is good news, it likely means the Federal Reserve will continue with interest rate hikes." 
It's that last point that sent the 10-year Treasury yield spiking 15.4 basis points to 2.83% today. (A basis point is one-one hundredth of a percentage point.) This initially sent stocks deep into the red, though they came off their lows as the session wore on. At the close, the Dow Jones Industrial Average was up 0.2% at 32,803. The S&P 500 Index, meanwhile, was off 0.2% at 4,145, while the tech-heavy Nasdaq Composite – whose components are most sensitive to rising rates – shed 0.5% to 12,657.
Other news in the stock market today:
Next up: Inflation data, with the July consumer price index (CPI) set to be released Wednesday morning. Douglas Porter, chief economist at BMO Capital Markets, points to the recent retreat in oil prices – U.S. crude futures fell 6.8% in July, and are down another 9.7% so far in August) as a reason for investors to be encouraged about this upcoming release. 
"A moderation in energy and other commodity costs would go a long way to making the Fed's job of controlling inflation expectations much easier," Porter says. "In turn, it could lessen recession risks by removing some of the squeeze on consumers." Still, while the economist says that the headline inflation rate in Wednesday's CPI report could move back below 9% after topping this level in June, it's going to take many months to bring inflation substantially lower. 
For investors, this means: Stay defensive. That could include focusing on stocks from the best inflation-proof sectors such as healthcare, consumer staples and utilities. Beverage stocks are also surprisingly good names to buy, not only for inflation protection, but also dividends. And for those that want to spread their risk around, consider these 10 defensive exchange-traded funds (ETFs) that could provide some ballast for choppy waters ahead.
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