Week in Review: June 7, 2024

June 10, 2024

Recap & Commentary

Markets ended the week higher, though outside of a briefly rally on Wednesday, which pushed the S&P 500 to a new record high, they spent most of week searching for, and finding, little direction. Despite the release of several closely watched economic indicators, the S&P 500 rose or fell less than 0.15% each day, save for Wednesday’s 1.2% gain.

The seeming indifference was likely due to investors being willing to bide their time before the release of key inflation data, and the Fed’s June FOMC meeting, this week. While markets were never expecting the Fed to cut rates at this week’s meeting, thanks to Friday’s stronger-than-expected employment report, the odds of a Fed rate cut in July dipped from 16% to 8%. The Fed’s upcoming meeting carries additional importance as policy makers will provide updated projections for the Fed Funds rate at the end of this year and next. After inflation generally surprised to the upside in 1Q24, it would not be surprising to see the Fed lower its projected 2024 rate cuts from three to two.

In Europe, the European Central Bank (ECB) cut rates by 0.25% to 3.75%, citing slowing inflation. Unlike the US economy, which has consistently bucked expectation of a recession despite higher rates, Euro Zone economic growth has hovered near 0% for over a year as the ECB has sought to control inflation.

Economic Commentary

Economic data for the week was headlined by Friday’s employment report showing nonfarm payrolls added 272K jobs in May, 90K more than forecast and over 100K more than April’s downwardly revised gain of 165K. Despite the gains, unemployment rose 0.1% to 4.0%, the first time since Jan. 2022. The increase was the result of over 400K lost jobs, according to household survey data, which is used to calculate the unemployment rate. The divergence between the two data sets, which happens periodically, left investors uncertain as to the actual direction of labor markets. Wage growth exceeded expectations, rising 0.4% from April and 4.1% from a year ago. The increase, while good for workers, is one more factor the Fed must consider in its inflation outlook.

In a separate report, the government reported that job openings in April fell to 8.1M, their lowest level since February 2021 suggesting slowing labor market conditions. At the same time, the number of job openings per unemployed individual fell to 1.2x, down from a high of 2.0x in March 2022, and its second lowest level since June 2021.

Data released by the Institute for Supply Management (ISM) was mixed, showing manufacturing activity contracted at a faster pace in May than in April, while the service sector returned to growth, expanding at its fastest pace in nine months. Employment data was mixed with manufacturing experiencing growth for the first time since September, while the service sector shed jobs for the fourth consecutive month. From an inflationary standpoint, both sectors saw a deceleration in the pace of price increases during the month.

Of Note

OPEC extended a 1.65 million barrels per day (mbd) production cut, first announced in 2023, until the end of 2025.  Previously the cuts had been set to expire at the end of 2024. Additionally, the group extended a separate production cut, set to expire in June, until the end of September. Price reaction was muted with oil actually falling ~$1.50/barrel over the course of the week.

Market Indices   (As of 06/07/2024)

The Week Ahead

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