Weekly Market Commentary July 1st to July 5th 2024

There was no shortage of data in this holiday-shortened week. The week started with the Institute of Supply Management (ISM) giving us their Manufacturing and Services indices for June. Both were slightly underwhelming but not surprising as the Federal Reserve continues to keep interest rates elevated in order to slow down the economy. Keeping in mind that anything under 50 means contraction, Manufacturing came in at 48.5 when 49.2 was expected. And Services likewise disappointed at 48.8 when 52.5 was expected. Services was the bigger of the surprises as we were expecting expansion following a stellar month of May and instead, we got contraction in this sector. Contraction means less folks are going out to dinner, staying in hotels, or going to the theater.

On Friday, we received the June labor report and it followed suit with the ISM indices. That is, mild but unsurprising disappointment. 206,000 jobs were created when 190,000 was expected, but it was the revised data from April and May that hurt. Those months were revised down by 111,000 so all three months of the second quarter were down compared to the first quarter. The once-strong labor market is starting to show cracks as the unemployment rate ticked up to 4.1%, a figure we haven’t seen since November of 2021. And year-over-year average hourly earnings were down to 3.90% from 4.10% in May. Lastly, the Jolts Job Openings for May came in at 8.14 million jobs available, slightly higher than expected and up from April. Similarly to the ISMs, this employment data just adds fuel to the fire that monetary policy is too restrictive. Look for the odds of a September rate cut to increase.

The equity markets took these mediocre results as an optimistic sign that lower rates are on the horizon. All three major indices were up with the S&P 500 Index closing at 5,567 or up 2.0% on the week; the Dow Jones Industrials climbed 0.7% to 39,376; and the NASDAQ closed at 18,353 or up 3.5%.

In the fixed income market, U.S. Treasury rates also rallied across the curve. The 2-Year ended the week at 4.61%; the 10-Year closed at 4.28%; and the 30-Year finished at 4.47%. The yield curve continues to flatten as we gradually get closer to a more normal, upward-sloping curve.

Next week will be a bit quieter as we will get June Retail Sales, Housing Starts and Building Permits, and regional manufacturing data. All eyes will be on the upcoming June inflation data in the weeks that follow.