Investors are keeping their nerve

Ahead of the non-farm payrolls report, with both the S&P500 and the Nasdaq hitting fresh record closing highs.

Article updated: 3 September 2021 8:00am Author: Richard Hunter

The consensus is for 750000 jobs to have been added in August, as against the much better than expected number of 943000 reported in July.

Such a figure would probably be enough to keep a lid on concerns of overheating, and would leave the level of employment around 5 million lower than the February 2020 peak. The lower figure for August is expected to have resulted from a resurgence in Covid-19 cases, which has crimped job growth as some remain unwilling to return to work in the face of the variant, and as some generous unemployment benefits persist.

At the same time, the shortage of raw materials which has been blocking the supply chain globally has also had an impact, with the likes of the motor sector hit by a shortage of semiconductors, and making general restocking more difficult.

Even so, a non-farms reading which confirms steady, rather than rapid economic expansion is likely to ease the pressure on the Federal Reserve to taper and at the same time vindicate its current views on the immediate outlook. Ahead of the release, markets have again nudged higher and in the year to date the Dow Jones is up by 15.8%, the S&P500 by 20.8% and the Nasdaq by 19%.

In the UK, traders are also non-committal ahead of the numbers, with the main indices little changed in early trade.

The FTSE250 has retreated slightly from the record high it achieved earlier this week, but remains firmly ahead by 18.2% in the year to date. The pace of growth for the premier FTSE100 has been rather more sedate, with the index having added 10.9% this year.

The variance between these performances has largely been driven by a UK economic recovery which, for the moment, is proving more robust than many had anticipated. The FTSE100 has rather more exposure to cyclical forces, such as the volatility of oil and general commodity prices as well as the banking sector. Both indices are still seen as being attractive on valuation grounds, particularly as compared to many international peers, and the more recent spike in both IPO and M&A activity has underpinned hopes for further gains.

More from Richard Hunter: read more articles directly on the interactive investor website.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Richard Hunter

Head of Markets, interactive investor

Richard has over 30 years of stockmarket experience and is one of the UK’s foremost commentators on market matters and a regular contributor for the BBC (BBC News Channel, Wake Up to Money and the Today Programme), CNBC and Bloomberg. Richard’s expert commentary also appears across the national and specialist press. He previously held senior positions at Hargreaves Lansdown and NatWest Stockbrokers.

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