Jobless claims
Jobless claims came in higher than expected last week with 419k new claims, well above expectations for 350k. This is higher from last week’s 368k print, which was also unfortunately revised upward. This is the highest report of jobless claims we’ve seen since mid-May. Unsurprisingly, Michigan saw the highest increase in new jobless claims as semiconductor shortages have caused significant delays in auto manufacturing – a big industry for jobs in the state.
Moral of the story: Stocks took quite a tumble on Monday as concerns about the delta variant (i.e. news of LA reinstating a mask mandate indoors…indefinitely) impacted investor sentiment. Though stocks have made a full recovery since then, this report caused some hesitation in the markets again Thursday morning. Despite the worrying prints, there are still some positive signs for the labor market out there – based on data from Indeed, there are 9.8m job openings today, compared to only 9.48m workers unemployed based on the Labor Department’s latest read through June. According to data from Yelp, about 60.5k businesses reopened in the second quarter, 36k of those were restaurants and other retail businesses. There are plenty of jobs out there to be filled; hopefully it’s just a matter of time.
Earnings recap
We’re about a quarter of the way through earnings season so far and it seems like we’re going to see the best growth in profits we’ve seen in over a decade. Earnings are expected to increase 76% compared to last year – though last year’s earnings for second quarter were completely blasted by COVID lockdowns so it makes for an easier comp. This also means, from a growth perspective, this quarter is likely to be the peak though 3Q and 4Q earnings expectations are moving upward given the strength of the earnings we’ve seen so far, indicating 27% and 20% earnings growth for the upcoming two quarters, respectively.
Moral of the story: One of the key elements so far during earnings is that we’ve seen companies maintain and actually even increase their operating margins – offsetting the higher input costs (commodities, labor, etc.) with higher prices given the elevated levels of demand out there today. Margins across the S&P 500 have been in the 9-11% range over the last several years and so far, this quarter, margins have come in closer to 12.8%. The robust earnings growth is definitely necessary to justify the performance we’ve seen in stocks and as of now there’s still reason for the party to continue.