News that Trump had withdrawn the U.S. from the Paris Climate Accords did not keep all three main U.S. stock indices from setting new highs the first trading day in June.
A batch of positive economic data showing that the U.S. economy was picking up speed offset any concerns there might have been Trump's rejection of the accords. Even some of the big oil companies such as Exxon were in favor of the U.S. remaining in the accords. The ADP private sector employment report showed that the U.S. economy added 253,000 jobs in May, whereas estimates only averaged 185,000 in a poll of economists. The report could point to a a strong government payrolls report on Friday that will include hiring both by the government and private sectors. This could lead to expectations of another interest rate hike by the Federal Reserve in two weeks time. Another report showed factory activity was up in May after it had been slowing down two months in a row.
Paul Springmeyer an investment managing director at U.S. Bank in Minneapolis said: "More than anything it is employment data driven, it was such a resounding uptick over expectations. It bodes well for the Fed; certainly the numbers are very, very high in terms of the likelihood of that (hike) coming through for June." Forecasts from Fed officials point to a median of two more interest hikes until the end of 2017. Thomson Reuters days show traders pricing in an 88.9 percent chance of an interest hike of a quarter-percentage-point at the Fed meeting on June 13-14. A JP Morgan spokesperson said of the jobs report "It was a very good, positive surprise. We've had a few negative surprises, so this is definitely against the current.Overall, it says the economy is still moving along nicely." On Friday morning at 8:30 the U.S. government will release its non-farm payrolls report. J.J. Kinahan chief strategist at TD Ameritrade said of the report: "What the ADP number does is it raises expectations that the jobs report can come at the top end of the range and maybe above the estimate," The good news appeared to offset the bad news that jobless claims were up from the forecast of 239,000, coming in at 248,000.
The Fed is not likely to decide not to up rates according to Jason Thomas, chief economist at AssetMark: "They have been telegraphing their moves clearly. They want to raise rates. My sense is that they see themselves in smooth waters right now, but those waters are shallow and there are rocks beneath. Unemployment is really low, but labor force participation has barely budged." CME Group' FedWatch tool put market expectations at a very high 95.8 percent.
Volatility in the market was low last month going below 10 six times during the month. These levels have not been seen in more than 20 years. Volatility is a gauge of fear in the market. In spite of all the media worries about Trump's behavior it does not seem to be reflected in investors exhibiting any fear in the way they are operating on the stock market. Some analysts are saying that there are good reasons for worrying about what Trump is doing as in a recent article in Bloomberg.
Jack Ablin, chief investment officer at BMO Privat Bank expressed concern: "Investors worry that the relationship between decreasing volatility and increased purchases could morph from a virtuous cycle to self-fulfilling feedback frenzy, leading to a vicious, volatility induced sell-off. The extent of a potential downdraft depends on how large the risk-parity investment community is. It's widely believed that the mass of money managed under a risk-parity mandate remains small, although it's a trend worth watching."
The Dow Jones Industrial average ended up 135.53 points, at 21144.18 a gain of .65 percent. The S & P 500 Index rose .76 percentage points to 2430.06 or 18.26 points. Finally, the third index the Nasdaq composite closed at 6246.83 or .78 percent gaining 48.31 points. In spite of the dismal performance of Trump the investment community so far appears to accept his policies as business friendly and discount his erratic behavior.
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