Danske Research notes that a strong US labour market report increased expectations of a more hawkish Federal Reserve, pressuring global equities. The S&P 500 declined while the Stoxx 600 posted a small gain, with cyclicals outperforming and rate-sensitive sectors underperforming. The team highlights that, despite Friday’s weakness, it was broadly a cyclical week, with Financials, Communication and Technology outperforming defensives.

Cyclicals outperform as defensives lag

“A strong US labour market report reignited fears of a more hawkish Fed and pushed equities broadly lower on Friday. The S&P 500 fell 0.4%, while the Stoxx 600 edged 0.1% higher.”

“Cyclicals held up relatively well like it should given the growth implications of stronger labour market data. Industrials, semiconductors and materials outperformed. “

“However, rate-sensitive areas such as biotech, software and real estate lagged and ultimately, higher rates trumped stronger growth expectations for most stocks, with roughly 65% of US stocks finishing lower on the day.”

“Despite Friday’s weakness, this concludes a generally cyclical week. Sector moves have not been dramatic, but the direction has been consistent.”

“Financials, communication and technology have gained around 2% over the past week, while more defensive areas such as energy, consumer staples and healthcare have fallen 0.5-1%.”

“US markets are closed for Labour Day today.”