Dow Jones Closes Higher As Job Data Lifts Stocks

On Friday, the Dow Jones closed higher after an impressive jobs data led to stock buying. Investors have always kept an eye on jobs data, but even more so this past year. The reason for this is because many want to see if the Fed will raise interest rates at the next meeting, which is set to take place in September. The Fed had raised rates back in December of 2015, which was the first time since 2006. It wasn’t that much of an increase, only by 0.25 points, but it was an increase nonetheless.

Rate Hike Back On Table

Things were looking pretty grim for the U.S. economy, especially after the most recent GDP report. The latest GDP reportsignified a huge slowdown in the U.S.economy, with growth only being at 1.2%. This was a very disappointing number, especially since most investors were looking towards at least a 2.6% growth in GDP. The main reason for the decline in GDP was less business spending. Managers were not pouring enough money into their businesses to justify higher growth. This led to a significant slowdown in the economy. Despite such negativity in the report, there was a bright side which helped keep everything in check. The bright side of the GDP report came from, surprisingly, the consumer. Consumer spending came in at a 4.2% growth during the quarter, which is a nice sign that consumers are still holding strong. There is no doubt that this GDP data made the Fed take a step back on wanting to raise interest rates in September. A growth in GDP such as this would spook any government entity. Just when it seemed like a Fed rate hike would be out of play, the U.S. jobs report painted a different picture. According to the Labor department, the amount of jobs created for the month of July was 255,000. This led to the unemployment rate staying at 4.9%. This was a much better number than the 180,000 expected. This jobs data brings back the possibility of a Fed rate hike in September. Typically, the possibility of a Fed rate hike occurring would bring the Dow Jones lower. In this case though, investors were just happy to see that the U.S. economy performed better than expected. This indicates to investors that risk is back on and stock buying is once again in play.

Dollar Rises

The U.S. dollar rose higher after the jobs report was announced. The better than expected amount of jobs created, brought back the notion that the Fed may have leverage to raise interest rates in September. It doesn’t mean that’s what the Fed will do, but with this positive jobs report it gives it an option. Whenever the Fed raises interest rates, the dollar tends to trade higher. This case was proven when the EUR/USD pair traded lower the day the jobs report was made public. The pair traded at $1.1155 before the report was made public. Afterwards, it traded to $1.1077 indicating that the dollar strengthened against the Euro.

What To Expect

U.S. future markets are holding strong with minor increases, after last week’s gain. The Dow Jones future is indicating a move slightly higher by 0.12% with 22 points. Last week the Dow gained 0.6% for the week. The main move came on Friday when the U.S. jobs report was released. The positive report helped the Dow to close up by 1.04% to 18,543.53. What traders should watch for in the Dow this week is whether or not it can breach its July high of 18,570. If it smashes through that then it will indicate a bullish trend higher. Considering the positive news from Friday it should not have a problem doing just that. A few things that could change this course of action would be U.S. data from retail sales, and productivity numbers. These economic readouts could move the Dow Jones in either direction depending if they are positive or not.