Job Growth Isn’t What It Seemed in May and June. Here’s Why.

(RONALDO SCHEMIDT / AFP / Getty Images)

This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.

Shocking Jobs Report

Economic Update
Regions Financial
Aug. 1: Total nonfarm employment rose by 73,000 jobs in July, a bit under our below-consensus forecast of 83,000 jobs, with private sector payrolls up by 83,000 jobs and public sector payrolls down by 10,000 jobs. Though below the consensus forecast, the July job growth number would not have shocked anyone. Instead, the shocking part of the July report comes from the revision to prior estimates of job growth in May and June, with a net downward revision of 258,000 jobs for the two-month period.

We don’t think our use of the word “shocking” is being overly dramatic. After all, we have been pointing to low initial collection rates to the Bureau of Labor Statistics establishment survey as diminishing the reliability of the initial estimate of job growth in any given month. The July rate was only 57.6%, the third time in the past four months with an initial collection rate of below 60%.

Richard F. Moody

A Technician’s View of Gold

Quick Takes
The Institutional View
Aug. 1: Gold just did something very unusual. It closed almost exactly unchanged (what I call a “0% close”) for three consecutive months. This is the first time that gold did this since its bull market was launched off the November 2022 low. Usually when prices have at least doubled and then close unchanged for three consecutive months, it marks an intermediate top. But…if the high could be exceeded, then a “vertical” and rapid advance would follow.

Gold failed three times at 3440-3500. It must hold June’s 3240 low. Otherwise, it would be vulnerable back to 3000. But if it could close above 3450, then my work would project a rapid climb to 4100-200. The next few weeks are the most critical for gold since its bull market began off 1635.

Andrew Addison

Real Estate Update

Equities | U.S. Sector & Industry Focus
July 31: While still early in second-quarter earnings season, real estate has seen the largest percentage of companies report of the 11 S&P 500 sectors. In total, of the 74% of the sector reporting, 65% have topped estimates. While the beat rate is currently third lowest among all sectors, it is an improvement over the past three quarters.

In addition, several companies noted strong demand during their earnings calls and remain optimistic for the second half. American Tower, Prologis, and Crown Castle are among the REITs that raised full-year guidance. More will be learned [this coming] week with Simon Property, Public Storage, and Realty Income set to report.

Rob Anderson, Thanh Nguyen

Sticking With Large-Caps

Market Perspective
Truist Financial
Aug. 1: We continue to favor U.S. large-caps and the growth style, where earnings momentum remains strongest. In contrast, small-caps and the equal-weighted S&P 500 continue to underperform, with relative prices hovering near multidecade lows. We maintain a neutral stance on international developed markets. Within fixed-income, we remain focused on high-quality bonds and are staying patient for a more attractive entry point in credit. We also continue to see value in gold as a portfolio diversifier.

The underlying equity uptrend still deserves the benefit of the doubt. However, markets have come a long way in a short time and were due for a breather. This is a classic “two steps forward, one step back” setup. We expect continued choppiness through the seasonal soft patch.

Keith Lerner

Cost Pressures on the Rise

Strategy Chartbook
July 31: With more than half of the S&P 500 companies having reported their financial results, a picture of solid revenue generation has emerged; however, this has been marred by unusual pressure on margins. With 328 results now out, sales are up in 10 of the 11 [industry] sectors, but net income has risen in just five and margins in four. It is rather unusual to see strong sales growth and mixed earnings performance—a combination that strongly suggests companies are struggling to keep their costs under control. Undoubtedly, this is being exacerbated by tariffs, at least in some sectors, while a weaker dollar over the past 12 months may have added to importers’ woes.

Andrea Cicione, Daniel Von Ahlen

Copper Comes a Cropper

deGraaf’s Daily
Renaissance Macro Research
July 31: Copper suffered its single worst one-day decline in at least 40-years. We weren’t endorsing the metal, as the catalyst for the breakout was news-induced, specifically unilateral tariff threats that have proved to be stakes in the ground rather than gospel. Copper is now oversold and still within trend, but these dislocations usually take time to settle down. Volatility is likely to decay from here. Seasonals, which are at their weakest point historically for the next three months, aren’t the catalyst for the move, but they are a cloud over a durable rebound. We see backing and filling taking place for the remainder of the summer. We are more buyers than sellers, but we will await an environment marked by apathy versus a panic.

Jeff deGraaf

“Extreme Greed”

Sector Watch
CFRA
July 31: As July comes to a close, investors are beginning to worry that the U.S. equity markets have gone too far, too fast. Indeed, the S&P 500 has risen more than 28% since the April 8 low….What’s more, the CNN Fear/Greed Index, typically viewed as a contrary indicator, recently registered “Extreme Greed.” Finally, the calendar is about to enter the most challenging seasonal period for equities (August through October).

Sam Stovall

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