US Equity Markets Close at Record Highs on Job Gains

The DJIA and the S&P 500 closed the week at record highs following a better-than-expected July nonfarm payrolls report which showed 943,000 jobs added last month while the unemployment rate fell to 5.4% from 5.9%. Financial stocks led the gains for the Dow Industrials on renewed hopes for the U.S. economy, despite a continued rise in COVID-19 cases. Consumers are starting to pull back on risk, but investors have yet to make that switch.

The Nasdaq lost ground for the second day in a row as investors have been shunning the stay-at-home stocks from 2020 like Peloton and Zoom in favor of large-cap tech, utilities, and health care. Shares of Robinhood (HOOD) continued their wild ride in their first full week of trading, rising 56% for the week amid frenzied options activity in the stock, which could point to more volatility ahead.

As for the U.S. labor market, July’s gains came on top of higher revisions for May and June. Hiring was strongest in the leisure and hospitality sector, with the addition of 380,000 jobs. Two-thirds of those jobs came from restaurants and bars—the hardest-hit sector during the pandemic.

Whether those gains will continue greatly depends on American consumers’ willingness to continue dining out. As daily COVID-19 cases rise, and more health and economic restrictions are implemented, the industry could face another steep downturn.

A lot of Bull

After plummeting during the onset of the pandemic in 2020, livestock prices have stampeded higher. If you were wondering why beef prices are so high at the supermarket or at your neighborhood steakhouse, take a look at what’s been happening in livestock, which includes live cattle, feeder cattle, and lean hogs.

Part of the surge in price comes from greater demand. Americans have been eating out more, and restaurants are among the biggest purchasers of livestock products. But livestock processors like Tyson Foods and Cargill have also been grappling with a lack of labor and the inability to meet that demand. 

The average annual pay for a meat-packing plant worker is around $25,000, according to ZipRecruiter. That’s not luring unemployed Americans back to the plant and is helping drive prices even higher. As JC Parets of AllStarCharts points out, livestock stocks have broken out of a five-year base and could continue to head higher if this dynamic persists in the meat market.

Consumers Pull Back on Risk

While investors continue to embrace risk, consumers are starting to tell a different story. According to the most recent Morgan Stanley and AlphaWise consumer survey, only 41% of respondents believe the U.S. economy will get better over the next six months, compared to 48% a month ago. 38% say it will get worse, compared to 33% last month. 

Most survey respondents identified the resurgence of COVID-19 as the reason for their caution, and while they intend to keep spending at current levels, they also intend to spend less on riskier activities. That means less eating at restaurants, less time in shopping malls, fewer visits to the gym, and less leisure and entertainment outside the home. 

Some of those activities may wane along with the end of summer, but the rise of the delta variant is amplifying risk aversion, and that could spell trouble for recent gains in the labor market, and all the industries still recovering from 2020’s losses.

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