The futures market is leaning toward a positive open to today’s stock trading. This morning, the U.S. Bureau of Labor Statistics released employment data for the month of June. Job additions tallied 206,000, versus economists’ estimate of 200,000 and the downwardly revised prior-month figure of 218,000. The domestic unemployment rate came in 4.1%, one-tenth of a point above both expectations and the May level. Hourly wages ticked up 0.3%, on a monthly basis, in line with the experts’ estimate, but slower than the 0.4% gain recorded in the previous month. Year over year, wages rose 3.9%, on a par with what was anticipated and below the May pace of 4.1%. The worker participation rate for last month was 62.6%, modestly better than the earlier reading of 62.5%.
Stocks are reacting in a favorable manner to the broader collection of employment data points. The labor market is gradually easing. We note that on Wednesday, investors learned that initial jobless claims for the week ended June 29th were incrementally higher. The same day, Automatic Data Processing reported fewer job additions of 150,000 in June, down 7,000, month to month. Also, last Tuesday, U.S. job openings crept up in May, to 8.1 million from 7.9 million. The Federal Reserve is closely watching employment trends, looking to head off any serious deterioration in the jobs sector, likely via a short-term interest-rate cut.
In this Fourth-of-July holiday-shortened week, the major equities indexes appear on track to achieve overall improvement. Through Wednesday’s close, the tech-weighted NASDAQ composite was up 2.6% and the broader Standard & Poor’s 500 index had advanced 1.4%, both cementing new records. The blue-chip Dow Jones Industrial Average had stepped up a comparatively modest 0.5%. We note that the Dow is not all that far from its own record. Electric car maker Tesla (TSLA) played a role in lifting share prices, as its recent reported vehicle deliveries were not as soft as analysts had feared.
Wednesday morning, Fed Chairman Jerome Powell underpinned markets with his comments on the health of the economy and the prospects for central bank interest-rate policy. He said the economy had made good progress toward cooler inflation and, despite signs of stressed consumers, is sustaining stable growth. At the same time, Mr. Powell cautioned that the Fed needs to be sure inflation has been tamed before reducing borrowing costs, and reiterated an inflation target of close to 2%; that means a rate cut may not occur until after this summer. The Federal Open Market Committee next meets July 30-31. Officials have three months of employment, inflation, and consumer spending data before the September meeting, when many on Wall Street expect a cut to be announced. The Street is hopeful for two 25-basis-point reductions in the federal funds rate, now 5.25%-5.50%.
The improved possibility of one or two interest-rate cuts by yearend is lending support to stock valuations, as is a positive outlook for June-quarter corporate earnings. We do believe rates will be lower at the end of 2024, and that stocks can score additional, albeit probably modest, gains. In the meantime, risks to the macroeconomy include the conflicts between Russia and Ukraine and between Israel and Hamas and Hezbollah, potentially further disrupting supply-chain flows; similar uncertainties related to the impacts of climate change; and mounting fiscal pressures in the United States, by way of deficit spending. In such a climate, diversification, including stocks, bonds, and cash, is key for individual portfolios. Equity portions should be weighted toward proven large-cap industry leaders. – David M. Reimer
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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