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“Good but not Great” Jobs Report, Shows Lower Unemployment Rate and Lower Labor Force Participation Rate

Weekly Update – June 04, 2021

  • The S&P 500 index rose 0.6% last week as May employment data showed US nonfarm payrolls had a smaller-than-anticipated increase last month, boosting expectations for the Federal Reserve to keep its easy money policies in place.
  • The market benchmark ended the first week of June at 4,229.89, up from last Friday’s closing level of 4,204.11. At its high of the day Friday, the S&P 500 was less than 5 points below its record intraday high.
  • This week’s move came in just four sessions as the US stock market was closed Monday for the Memorial Day holiday. The S&P 500 is now up by nearly 13% for the year to date.
  • The Labor Department on Friday reported nonfarm payrolls rose by 559,000 in May, below the 675,000 jobs increase expected in a survey compiled by Bloomberg, though April payrolls had a small upward revision to a 278,000 increase.
  • The unemployment rate fell more than expected to 5.8% in May from 6.1% in April. The consensus estimate had been for a 5.9% rate.
  • The labor force participation rate, however, fell to 61.6% from 61.7% and the size of the labor force declined, signs that workers remain reluctant.
  • The S&P 500 had declined by about 0.3% over the first three sessions of the week as investors traded cautiously heading into Friday’s jobs data amid concerns that better-than-expected jobs data could prompt the Federal Reserve to start pulling back on its easy money policies sooner than previously anticipated. The report of a smaller-than-expected jobs increase for May was thus welcome news for the market and prompted the S&P 500 to gain 0.9% in Friday’s session, sending the index into the black for the week.
  • The energy sector had the largest percentage gain of the week, up 6.7%, followed by a 3% rise in real estate and increases of 1.2% each in financials and technology.
  • Only two sectors ended the week in the red versus last Friday: health care, which fell 1.2%, and consumer discretionary, down 1%.
  • The energy sector’s climb came as crude oil futures rose amid a higher demand forecast from the Organization of Petroleum the Exporting Countries. Gainers included Occidental Petroleum (OXY), up 12%, which also received an investment rating upgrade this week to overweight from equalweight from Barclays.
  • In real estate, shares of Iron Mountain (IRM) rose 4.9% as the storage and information management services company said it is building a new 27-megawatt data center in London that will be powered by 100% renewable energy.
  • On the downside, the health care sector’s decliners included shares of Abbott Laboratories (ABT), which shed 6.3% as the pharmaceutical company lowered its guidance for 2021 due to recent and projected declines in demand for COVID-19 diagnostic testing. The company said it continues to see strong base business growth, which excludes COVID-19 tests.
  • The market next week will receive April consumer credit data on Monday, followed by the April trade deficit and job openings on Tuesday and April wholesale inventories on Wednesday. Thursday’s economic reports will include the May consumer price index in addition to weekly jobless claims, followed by the preliminary June report on consumer sentiment.
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