Domestic economic data during the week was generally strong, which may have contributed to Friday’s rally once the imminent risk associated with the Russia/Ukraine conflict subsided. Labor market indicators continue to show some momentum, with weekly unemployment claims declining to 289,000 and the four-week average of claims falling to the lowest level since February of 2006.
For the week, the S&P 500 added +0.33%, the Dow Jones Industrial Average gained 0.37%, and the MSCI EAFE (developed international) declined -2.44%.
Here are the 3 stories this week that rose above the noise:
Job Openings in U.S. Increase to Highest Level Since 2001
The monthly Job Openings and Labor Turnover Survey (JOLTS), which is helpful in providing context to the monthly non-farm payrolls report, was released this morning and indicated job openings in June rose to the highest level since 2001. As detailed in this summary of the report from Bloomberg, Fed Chair Janet Yellen has mentioned JOLTS data as indicators she is tracking to determine the overall health of the labor market.
Today’s report indicates there are about two unemployed people for each job opening, which is down from 3-to-1 ratio one year ago but not quite back to the prerecession level of 1.8. Although the headline job numbers remain very encouraging, the article mentions many other employment measures that remain below pre-recession levels, suggesting the Fed is unlikely to bring forward expectations for its first interest-rate hike unless these indicators of slack in the labor market rapidly improve.
Federal Reserve Tapering Part II: Emerging-Market Local Debt Performance
A recent WisdomTree blog supports the bullish case (faster economic growth, improving fundamental balances and increases in investor sentiment) for investing in emerging-market local debt. Since tapering began in December 2013, currencies have been a modest detractor from overall returns for the asset class, however WisdomTree does not believe that this currency underperformance will continue in perpetuity.
Many of the countries that were the largest underperformers leading up to the implementation of tapering have reverted to be among the strongest outperformers this year as higher income and the fall in yields from their peaks has helped many of these countries recoup losses experienced in 2013. Further, they state “while volatility is undeniably higher for emerging-market fixed income, 5-year U.S. Treasury yields of 1.75% provide limited options for attractive returns if rates rise by even a modest amount.”
Fed Survey: Mortgage Standards Ease for First Time since Housing Bust
A July Federal Reserve survey showed that lenders continued to ease standards on loans to businesses amid a “broad-based pickup” in loan demand. Nearly one in four banks in the U.S. said they had eased mortgage-lending standards for borrowers with strong credit during the second quarter, the largest such movement by lenders since the housing bust hit nearly eight years ago.
Demand for prime mortgages rebounded to its highest level in a year, according to the Fed survey, offering a hopeful sign for housing markets that have stumbled during the first half of the year. Despite the uptick in the number of banks that signaled easier standards on mortgage lending, most banks said standards remain tighter than normal.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
