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Wall Street shrugs off July jobs data as stocks edge up

Stocks barely budge after the Labor Department reported the U.S. added 162,000 jobs last month, fewer than economists had predicted but still a sign the economy is improving, however sluggishly.

August 02, 2013|By Andrew Tangel
  • Major U.S. indexes edged higher Friday, but endured no large swings as is typical when the government releases its all-important jobs report at the beginning of each month. Above, a trader works on the floor of the New York Stock Exchange on Friday.
Major U.S. indexes edged higher Friday, but endured no large swings as is… (Justin Lane, European Pressphoto…)

NEW YORK — The federal government's monthly bombshell landed with a thud on Wall Street.

Stocks barely budged after the Labor Department reported the U.S. added only 162,000 jobs last month, fewer than economists had predicted but still a sign the economy is improving, however sluggishly.

"It certainly wasn't a blowout number, but it's progress," said Andy Brooks, head equity trader at T. Rowe Price.

Major U.S. indexes edged higher but endured no large swings as is typical when the government releases its all-important jobs report at the beginning of each month.

The Dow Jones industrial average ended up 30.34 points, or 0.19%, at 15,658.36, while the broader Standard & Poor's 500 index was up 2.80 points, or 0.16%, at 1,709.67. The tech-focused Nasdaq composite index rose 13.85 points, or 0.38%, to 3,689.59.

Friday's jobs numbers ended a string of recent upbeat economic reports pointing to steadily rising fortunes for the United States. Investors pushed stocks to new highs this week, thanks also to signs of strength in China's economy. The S&P 500, a commonly used benchmark for U.S. stocks by professional investors, on Thursday burst through a psychological threshold of 1,700 for the first time.

Much of the fuss over the labor market is really about the Federal Reserve. The central bank has signaled it will scale back its epic stimulus as the economy gains steam but has left Wall Street analysts guessing when it will begin the "tapering."

The Fed's pumping of $85 billion a month into the economy — by buying bonds — has kept a lid on interest rates but pushed investors into riskier assets like stocks. The monetary stimulus, known as quantitative easing, has fueled a meteoric stock rally this year.

"We need the Fed to put this program in reverse over time because it means things are better," Brooks said. "They can't keep buying forever."

Investors shoveled more than $15 billion into stock funds last month through July 24, according to data from the Investment Company Institute. That's after pulling out $58 million in June, according to ICI.

Many Wall Street analysts expect the Fed to announce it will begin closing off its spigot of easy money this year, perhaps as early as next month. But Chairman Ben S. Bernanke has said the Fed could even increase stimulus if needed down the road, helping sooth investor worries the central bank would cut off its economic lifeline too soon.

"The Fed believes the economy can stand on its own," said Tanweer Akram, a senior economist at ING U.S. Investment Management. "They can still increase the balance sheet of the Fed if necessary."

Public companies have been giving investors their own reasons for optimism. Companies have been reporting their second-quarter earnings since July 1, showing how the economy's improving fortunes have lifted corporate profits.

So far, 67% of the 393 companies in the S&P 500 to report earnings have beaten analysts' expectations, according to research firm S&P Capital IQ.

Wall Street, in turn, has raised prospects for earnings growth in the last quarter. Analysts now expect S&P 500 companies to report 4.4% profit growth on average, higher than the 2.9% expected at the start of last month, according to S&P Capital IQ.

With Friday's slight rise, the S&P 500 was up nearly 20% for 2013 — and up nearly 25% in the last year. And bullish prognosticators expect the rally to continue.

"The market's been terrific this year, and the market's suggesting that the economy is improving and things are going in the right direction," Brooks said. "It seems like it's got more to go."

andrew.tangel@latimes.com

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