A crucial week of labor market data will be a welcome welcome to investors during the holiday-shortened trading week beginning July, the third quarter and the second half of 2024.
The S&P 500 (^GSPC) enters the third quarter up 14.5% so far this year, while the Nasdaq Composite (^IXIC) is up more than 18%. The Dow Jones Industrial Average (^DJI) rose 3.8% in the first six months of the year.
With stocks holding near record highs and recent inflation trends proving more positive, all eyes have turned to the labor market for signs of weakness as the Federal Reserve maintains its tight interest rate stance.
The June jobs report will provide a solid look at the labor market on Friday, while updates on private payrolls and job openings will also be in focus throughout the week. Updates on activity in the manufacturing and services sectors will also be released during the schedule.
Constellation Brands (STZ) is expected to be the lone noteworthy earnings report for the company during a quiet week before the big banks officially kick off their second-quarter earnings season the following week.
Markets in the United States will close early on July 3 (1 p.m. ET) and will remain closed on July 4 for Independence Day.
A look at the labor market
The June jobs report is due out Friday morning and is expected to show further slowdown in the labor market.
The report is expected to show that the U.S. economy added 188,000 jobs last month, with the unemployment rate holding steady at 4%, according to data from Bloomberg. In May, the U.S. economy added 272,000 jobs, while the unemployment rate rose slightly to 4%.
Bank of America economist Michael Gapen said the report would continue to show a “cool but not cold” labor market.
The latest reading of the U.S. Federal Reserve’s preferred inflation gauge showed on Friday that inflation eased in May, with prices rising at their slowest pace since March 2021.
This publication was considered a step in the right direction in the Fed’s fight against inflation.
Positive trends in inflation, coupled with signs of slowing economic activity, have led economists to say that the Fed should be inclined to lower interest rates sooner rather than later.
“There are emerging signs of a weak labor market [Fed] “U.S. officials also need to pay attention to risks to the full employment side of their state,” Michael Pearce, deputy chief US economist at Oxford Economics, wrote in a note to clients.
Half time report
Just as was the case in 2023, the bulk of the stock market rally in 2024 was driven by a few large technology stocks.
At midyear, more than two-thirds of the S&P 500’s gains this year came from Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Broadcom (AVGO). Nvidia alone accounted for nearly a third of those gains.
Despite some short-term gains throughout the year, only two sectors have outperformed the S&P 500 this year: telecommunications services and information technology. Both are up more than 18%, compared with the S&P 500’s gain of about 15%.
This has led to continued debate over whether the second half of the year will see a broader stock market rally, a hot-button issue on Wall Street.
In a recent research note, Mike Wilson, chief investment officer at Morgan Stanley, argued that given weak economic data and rising interest rates, a real expansion in which non-tech sectors exploit the slack is unlikely.
“The tight range can continue, but it’s not necessarily a headwind to returns per se,” Wilson said. “We believe expansion will likely be limited to high quality/large funds for now.”
More huge exceptionalism
Most strategists see the tech giants leading the rally for good reason, given their earnings continue to outperform the market. This is expected to be the case during Q2 earnings as well.
Earnings from Nvidia, Apple, Alphabet, Microsoft, Amazon and Meta are expected to grow a combined 31.7% in the second quarter, according to U.S. equity strategist at UBS investment bank Jonathan Golub.
The S&P 500 itself is expected to grow earnings by a more modest 7.8%.
This means that the lion’s share of earnings growth is once again expected to come from big tech companies. A similar trend was seen in second-quarter earnings revisions.
Since March 31, Golub’s work has shown that earnings estimates for the S&P 500 have fallen just 0.1%, well below the typical 3.3% decline on average. That’s largely due to a 3.9% upward revision for the six largest technology companies mentioned above.
As we enter the second half of the year, the debate over whether flat earnings for big tech companies will decline will remain at the center of attention.
Weekly calendar
Monday
Economic data: S&P Global Manufacturing Index, June Final (51.7 expected, 51.7 prior); Construction Spending, MoM, May (0.3% expected, -0.1% prior); ISM Manufacturing Index, June (49.2 expected, 48.7 prior)
Earnings: No noticeable profits.
Tuesday
Economic data: Job Openings, May (7.86 million expected, 8.06 million previously)
Earnings: No noticeable gains.
Wednesday
Economic data: MBA Mortgage Applications, week ending June 28 (0.8%); ADP Private Payrolls, June (+158k expected, +152k previously); S&P Global Services PMI, final June (52.3 expected, 55.1 previously); S&P Global Composite PMI, final June (54.6 previously); ISM Services Index, June (52.5 expected, 53.8 previously); ISM Service Prices, June (58.1); Factory Orders, May (0.3% expected, 0.7% previously); Durable Goods Orders, final May (0.1%)
Earnings: Planetary Brands Group (STZ)
Thursday
Markets are closed for the Fourth of July holiday.
Friday
Economic calendar: Nonfarm Payrolls, June (+188,000 expected, +272,000 previously); Unemployment Rate, June (4% expected, 4% previously); Average hourly earnings, month-on-month, June (+0.3% expected, +0.4% previously); Average hourly earnings, year-over-year, June (+3.9% expected, +4.1% previously); Average weekly hours worked, June (34.3 expected, 34.3 previously); Labor Force Participation Rate, June (62.6% expected, 62.5% previously)
Profits: No noticeable gains.
Josh Schaffer is a reporter for Yahoo Finance. Follow him on X @_Gushshafer.
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