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Does The Jobs Report Change Anything?
The Fed’s monetary policy mandate requires consideration of both inflation and labor market conditions. If the former compels a rate hike next month, would the latter stand in the way? That’s the question of the hour after last week’s jobs report, with a headline that telegraphed “weakness.” Elias and Ed argue that the headline numbers looked deceptively weak because of calendar effects and World Cup related distortions. Indeed, most industries posted job gains. In short, the labor market is well balanced. So, no, it shouldn’t stand in the way of the Fed’s tightening in September.
US SECTORS CALL: What's Up, What's Down In The S&P 500?
Information Technology (MW) led the S&P 500 sectors last week, up 7.2%. Investors bought back the tech stocks they sold in July. Tech remains below its June peak (chart). Software stocks were especially strong last week (chart). The Financials, Health Care, and Industrials sectors all rose to record highs last week. We have been rating all three overweight (table above). Materials (OW) had a good week too. Energy (OW), Real Estate (UW), and Utilities (OW) were down last week. Let's have a closer look at Health Care, Materials, and Utilities: (1) Health Care. Health Care reached a record high last week, rising 2.0% wtd and 6.9% ytd. Leading the ytd derby are Managed Health Care (up 24.9%), Health Care Services (17.5%), Pharmaceuticals (14.8%), and Biotechnology (12.2%). Health Care Equipment is down 16.3% ytd (charts). Health Care earnings are forecast to grow just 0.1% in 2026, the worst projected growth of the 11 sectors, then 23.0% in 2027 (chart). Pharmaceuticals’ earnings growth is forecast at 28.5% next year. (2) Materials. Materials rose 5.6% wtd and 15.3% ytd. The sector's ETFs may be set to break out to new record highs (chart). The sector trades at a forward P/E of 17.9, compared with 20.3 for the S&P 500. Copper futures hit a record high last week, closing at $6.57 per pound (chart). The rally reflects a tightening physical market as much as stronger demand: Mine disruptions, the DRC’s new ban on copper-concentrate exports, and US buyers’ stockpiling refined copper ahead of potential US tariffs have reduced supply. Data centers, EVs, and grid investment all have boosted demand for the red metal. Gold also had a very good week (chart). The gold price built a base around $4,000 per ounce recently and may be starting to head higher. We are still targeting $5,000 by the end of this year. Analysts expect the Steel, Copper, and Gold industries’ earnings to grow 127.1%, 70.0%, and 34.0% this year, compared with 38.9% for the Materials sector as a whole (chart). (3) Utilities. Utilities fell 1.7% this week (chart). It is up just 2.0% ytd, the worst ytd performance of the 11 sectors. Leading the weakness both ytd and wtd is the Independent Power Producers & Energy Traders industry index. That industry's earnings expectations have gone the other way—up. Forward earnings per share and the forward profit margin (15.1%) both are at record-high levels. Profit margins have climbed from below 9% in 2012, with the steepest gains since 2023, as heavy loads from data centers have begun to reshape the demand outlook. The industry's EPS is expected to be up 92.4% compared to 11.2% for the Utilities sector broadly (chart).
GLOBAL MARKET CALL: Will Yen Yin Or Yang Financial Markets?
The Go Global investment strategy has outperformed Stay Home this year, and August has not changed that. Korea and Taiwan are back at the front of the performance rankings to start the month, with China lagging again. Last week, Japan and the US jointly bought yen for the first time since 1998, following its fall to a near 40-year low of around 164 yen per dollar. US Treasury officials feared that the Japanese would be forced to sell US Treasuries to support their currency. The yen recovered to 157.94. Treasury Secretary Scott Bessent told CNBC on August 4 that "you can give market signals with intervention, but it's policy that turns it." Despite the noise, global financial markets didn't flinch on fears that the yen carry trade might unwind, as discussed further below. Here's more: (1) Performance. Korea and Taiwan lead the mtd rankings in dollar terms, up 5.7% and 6.8%, with South Africa the only market ahead of them (chart). China and Hong Kong are negative, and Brazil is at the bottom at -3.6%. The US is up 3.5%, ahead of both the ACWI and ACWX. The ytd table shows similar performance rankings, with much greater divergence among the results. Korea is up 70.8% and Taiwan 62.3%, with EM ex-China third at 30.3% (chart). The US has been grinding higher at 13.4%. Globally, equity ETFs remain in a broad bull market that started in late 2022 (chart). The spreads between the major overseas equity ETFs and the US ETF have been mostly rising since early 2025, when Go Global started outperforming Stay Home (chart). Within emerging markets so far this year, EMXC is outperforming EEM (chart). We prefer the former to the latter, which has been a poor long-term investment. (2) Revenues & earnings. Forward earnings for the All Country World ex-US MSCI is up 33.8% y/y, a rate exceeded only during the 2021 rebound in the series' history (chart). Forward revenues is up 7.3%. Collectively, overseas economies are doing remarkably well, according to these indicators! (3) Sectors. In the developed world so far this year, Telecommunications, Energy, Technology, and Basic Materials are outperforming the FTSE Developed World stock price index (chart). In the emerging world so far this year, Technology, Industrials, and Health Care are the outperformers (chart). (4) Japan. For all the concerns about a weak economy and rising interest rates, the Japanese equity market is one of this year's outperforming markets (chart). Japan's outperforming sectors so far this year are Technology, Financials, Basic Materials, and Industrials (chart). In recent years, there has been an inverse correlation between the Nasdaq 100 and the yen-per-dollar exchange rate (chart). This can be explained by the carry trade. Hedge funds borrow funds in Japan, where interest rates have been very low. They convert those funds to dollars and buy the Nasdaq 100. They win as long as the yen doesn't strengthen. When it does, they must cover their positions in the Nasdaq 100. Of course, they have been playing this game in lots of other currencies and assets around the world. So far, despite the recent strength in the yen in response to the joint intervention by Japan and the US, the Nasdaq 100 rose sharply last week. Traders may be skeptical that the yen will continue to strengthen.
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