Market Week in Review

Key takeaways from the U.S. June jobs report

In this week’s video update:

  • What are the takeaways from the U.S. jobs report for June?
  • How did markets react to bailouts of two Italian banks?
  • What should investors expect from the second quarter earnings season?

U.S. jobs report for June released

In this week’s edition of Market Week in Review, Chief Investment Strategist Erik Ristuben discussed with Todd LaFountaine, program director, advisor insights, the U.S. jobs report for the month of June, which was released by the Bureau of Labor Statistics today.

The U.S. labor market continues to be a bright spot for the economy, Ristuben noted, with 222,000 jobs added in June alone, and a year-to-date average of 180,000 per month. However, these numbers don’t alter Russell Investments strategists’ overall view of the U.S. economy—which is that it’s solid, but not spectacular. Case-in-point, according to Ristuben, is that wage growth remained flat, at 2.5% year-on-year. That number is lower than what both the U.S. Federal Reserve (the Fed) and Russell Investments’ team of strategists expected. “The lack of wage pressure is becoming an increasingly difficult thing for the Fed to deal with,” Ristuben said, noting that the Fed’s premise for potentially raising interest rates in the second half of the year is tied to this. “Wage pressure is solid, but not great—and inflation has consistently disappointed in the U.S.”

Market reaction to Italian bank bailouts

Switching to Italy, LaFountaine and Ristuben discussed the Italian government’s recent bailout of two Italian banks—and why the markets remained relatively calm after this happened. According to Ristuben, the tranquility was due in large part to the political support that the Italian government amassed from both the European Central Bank (ECB) and the European Union (EU) ahead of time. “Everyone was on the same page in terms of how the issues were addressed,” Ristuben said, hailing the decision as politically expedient.

He pointed out that Italy has lagged behind most of Europe in its economic recovery, which in the view of Russell Investments’ strategists is due to undercapitalization of Italian banks. Going about the bailout with the blessing of the ECB and the EU “shows there’s a blueprint for Italy to address this problem in a way that’s politically acceptable for all parties and productive for the economy— and that’s why the markets liked it,” Ristuben said.

Second quarter earnings season—What should investors expect?

Transitioning to the kickoff for second-quarter earnings season, Ristuben noted that Russell Investments’ team of strategists forecasts good news, to the tune of 7 to 8% earnings growth for U.S. companies. He expects that much of the positive momentum will come from the energy sector, due to a big year-on-year growth rate. This is primarily because earnings for energy companies in the second quarter of 2016 were negative.

In Ristuben’s view, the rest of the growth will be more modestly positive. He believes that multinational companies will lead again, as global growth has still been good.

Watch the video.

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