Weekly Market Update: July 15, 2024
The nation added an estimated 206,000 jobs in June. That tally pushed estimated non-farm payroll creation above 1.33 million for the first half of this year. However, a closer look raised some concerns, the biggest of which was the continued uptick in the unemployment rate, now at 4.1%. The report also included sharp downward revisions to the April and May totals.
The June jobs data was still another “Goldilocks” report for Wall Street. That is because the job creation figure was high enough to keep the “soft landing” scenario for the U.S. economy in place, even with some weakness seen in other parts of the economy (see below). The decrease in the rate of average hourly wage growth over the last 12 months suggests inflation in the labor market is slowing. This raised sentiment that the Federal Reserve may begin reducing the federal funds rate by a quarter point, perhaps as early as the September Federal Open Market Committee (FOMC) meeting. However, Wall Street has been wrong on a few occasions recently in predicting when the Fed will pivot.
The lead bank is walking a tightrope on monetary policy. Its goal is to bring the pace of price growth closer to the bank’s target rate of 2%, but it must guard against pushing the economy into a recession to accomplish this task. On point, the Institute for Supply Management reported that manufacturing and non-manufacturing (services) activities both contracted in June. This is noteworthy, as the services sector has been a key contributor to the recent gross domestic product expansion. Investors should note that June consumer and producer price data were due shortly after we went to press.
Meanwhile, second-quarter earnings season is heating up. Entering the reporting season, the Wall Street consensus was estimating average profit growth of roughly 9% for the S&P 500 companies. This would mark the highest year-over-year earnings growth in more than two years and that expansion may be needed to justify the Index’s current high price-to-earnings multiple.
Conclusion: Stocks continue to move higher on the expectation of strong corporate earnings growth and hope that the Federal Reserve will begin cutting interest rates before year’s end.
Source: ValueLine.com
