The S&P 500 closed at a record again Wednesday, wrapping up a positive end to the first half of the year following a stronger private jobs report, with investors touting further market gains for the remainder of the year.
Private payrolls increased 692,000, beating the consensus estimate of 600,000, as the reopening of the economy drove up job gains in leisure and hospitality.
“The services jobs was very strong in the ADP report, which is consistent with the reopening in the U.S.,” John Ragard, senior portfolio manager, small cap equity at Spouting Rock Asset Management told in an interview on Wednesday. “Airlines are hiring more pilots, hotel occupancy and hotel rates are increasing, there’s clearly a need for more people to come back into the services sector, especially into the travel and transportation industry.”
“The bond markets are telling us that growth is decelerating [amid] some recent inflation data points that have been relatively soft.” Ragard said. “I’m not saying that we won’t still see some surprising inflation numbers, month to month, but I do believe that the growth rates have peaked.”
Still, the overall market will continue to grind higher in the second half of the year with greater corporate productivity expected to push earnings higher.
“I think the market will continue to gradually drift higher, driven by the relative strength of company’s earnings and cash flows,” Ragard said. The pandemic impact and the labor shortage have forced companies to spend money on technology including automation, driving up productivity gains, which ultimately will boost margins and earnings growth.
“Companies are finding ways to make capital decisions mostly with technology to get good rates of return on their investment and faster paybacks,” Ragard added. “This is enhancing their profit margins and will help to offset some of the headwinds with inflation and the [expected] deceleration of economic growth,” Ragard added.