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2020 Financial Markets Update

Week in Review: July 5, 2024

July 8, 2024

Recap & Commentary

Markets moved steadily higher over the course of the holiday-shortened week with both the S&P 500 and NASDAQ recording multiple new record highs. Friday’s employment report though stronger than expected on a headline basis, help propel the odds of a September rate cute higher due to downward revisions to prior months’ data.  Signs of slowing job growth combined with weaker than expected ISM data helped push the odds of a September rate cut to 72%, up from 58% a week earlier.

In his first public comments since the Fed’s June FOMC meeting, Fed Chair Jay Powell reiterated that while trends in recent inflation data have been welcomed, additional evidence that inflation is moving sustainably towards the Fed’s 2% will be necessary before the Fed has the confidence to cut rates.  Speaking at a conference in Europe, Powell said, “We just want to understand that the levels that we’re seeing are a true reading on what is actually happening with underlying inflation.”  Powell also noted that “because the U.S. economy is strong and the labor market is strong, we have the ability to take our time and get this right.”

In Europe, closely watched elections in the UK and France witnessed significant shifts in the political landscape. In the UK, PM Rishi Sunak’s Conservative Party was swept from power after 14 years, ushing in the Labour Party and new PM Keir Starmer, the country’s fifth prime minister in the past four years. In France, Parliamentary elections resulted in a “hung” parliament with  President Manuel Macron’s centrist alliance losing its majority, and no other alliance being able to gain a majority, potentially setting the country up for political paralysis.  The outcomes in both countries have the potential to impact a host of issues including the war in Ukraine and global diplomacy.

Economic Commentary

The week’s economic data was headlined by the June employment report in which nonfarm payrolls added 206K, ahead of the 191K forecast, but down from May’s downwardly revised pace of 218K.  Payroll additions for April and May were revised down by a combined 111K, bringing the three-month trailing average of nonfarm payroll additions to 177K, the slowest pace since January 2021. Unemployment ticked up 0.1% for the second consecutive month, to 4.1% as the number of individuals entering the workforce (277K) surpassed the number of individuals who found work (116K), according to the household survey data used to calculate unemployment. Wage growth slowed from 4.1% to 3.9%, a positive from an inflationary standpoint.

Data published by industry group ISM showed that that activity in both the manufacturing and services sectors contracted in June. That marked the second time in the past three months in which activity in both sectors contracted in the same month. Employment in both sectors contracted, as did new orders, an indicator of future activity. Perhaps the only positive was a deceleration in prices in both sectors which could provide further relief to broader inflationary pressures in the months ahead.

Of Note

Job openings rose slightly in May, from 7.9M to 8.1M signaling continued demand for labor. The job openings to unemployed ratio now stands at 1.2X, the same level as in February 2020, and down from the record 2.0x in March 2022.

Market Indices   (As of 07/05/2024)

S&P 5002.0%
Small Caps-1.0%
Intl. Developed2.2%
Intl. Emerging1.7%
U.S. Bond Market0.7%
10-Year Treas. Yield4.28%
U.S. Dollar-0.9%
WTI Oil ($/bl)$83
Gold ($/oz)$2,400

The Week Ahead

  • Consumer Inflation (CPI)
  • Producer Inflation (PPI)
  • Consumer Sentiment
  • Weekly Jobless Claims

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