A crucial week of labor market data will greet investors during a holiday-shortened trading week that begins July, the third quarter and second half of 2024.
The S&P 500 Index (GSPC) enters the third quarter up 14.5% year-to-date, while the Nasdaq Composite (IXIC) is up more than 18%. The Dow Jones Industrial Average (DJI) is up 3.8% in the first six months of the year.
With stocks hovering near record highs and recent inflation trends turning more positive, all eyes have turned to the labor market for signs of weakness as the Fed maintains its restrictive interest rate policy.
The June jobs report will provide an in-depth look at the labor market on Friday, while updates on private sector wages and job openings will also be in focus throughout the week. Updates on activity in the manufacturing and services sectors will also be scattered throughout the calendar.
Constellation Brands (STZ) is expected to be the focus of the only notable corporate earnings report in an otherwise quiet week before the big banks officially kick off the second-quarter earnings season the following week.
Markets in the United States will close early on July 3 (1 p.m. ET) and remain closed on July 4 for Independence Day.
A look at the job market
The June jobs report is due out Friday morning and is expected to show a further cooling in the labor market.
The report is expected to show that 188,000 nonfarm jobs were added to the U.S. economy last month, while unemployment held steady at 4%, according to Bloomberg data. In May, the U.S. economy added 272,000 jobs while the unemployment rate edged up to 4%.
Bank of America U.S. economist Michael Gapen said a report along those lines would continue to show a labor market that is “cooling, but not cooling.”
On Friday, the latest reading of the Fed’s preferred inflation gauge showed that inflation slowed in May, with prices rising at their slowest pace since March 2021.
The release was seen as a step in the right direction in the Federal Reserve’s fight against inflation.
Positive inflation trends, combined with signs of slowing economic activity, have economists arguing that the Fed should move toward cutting interest rates sooner rather than later.
“Emerging signs of weakness in the labor market suggest that Fed officials also need to be mindful of risks to the full-employment side of their mandate,” Michael Pearce, deputy chief U.S. economist at Oxford Economics, wrote in a note to clients.
Half-time report
Just like in 2023, most of the 2024 stock market rally has been driven by a few big tech stocks.
Halfway through the year, more than two-thirds of the S&P 500’s gains come from Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META ) and Broadcom (AVGO). Nvidia alone generated nearly a third of these gains.
Despite a few short-lived rebounds throughout the year, only two sectors have outperformed the S&P 500 this year: communication services and information technology. Both are up more than 18% compared with the S&P 500’s gain of about 15%.
That has fueled debate over whether the second half of the year will see a broadening of the stock market rally, a hot topic on Wall Street.
Morgan Stanley’s chief investment officer, Mike Wilson, recently argued in a research note that given weak economic data and high interest rates, a true broadening in which sectors non-technology related take over is likely.
“Narrow breadth may persist, but it is not necessarily a hindrance to returns in and of itself,” Wilson said. “We believe the expansion will likely be limited for now to high-quality, large-cap pockets.”
More exceptionalism from megacaps
Most strategists believe that big tech companies have led the rally for good reason, as their earnings continue to outperform the market. This should also be the case during the second quarter results.
Nvidia, Apple, Alphabet, Microsoft, Amazon and Meta are expected to see their profits rise a combined 31.7% in the second quarter, according to Jonathan Golub, UBS Investment Bank U.S. equity strategist.
The S&P 500 itself is expected to see more modest earnings growth of 7.8%.
This means that the lion’s share of profit growth should once again come from Big Tech. A similar trend was observed in second-quarter earnings revisions.
Since March 31, Golub’s research shows that S&P 500 earnings estimates have declined just 0.1%, much less than the 3.3% average decline seen on average. That’s largely due to a 3.9% upward revision for the six largest tech companies mentioned above.
As we enter the second half of the year, the debate over whether the steady profits of these big tech companies will decline will remain center stage.
Weekly calendar
Monday
Economic data : S&P Global U.S. Manufacturing, June final (51.7 expected, 51.7 prior); Construction Spending, Month-over-Month, May (0.3% expected, -0.1% prior); ISM Manufacturing, June (49.2 expected, 48.7 prior)
Earnings: No significant income.
Tuesday
Economic data : Job openings, May (7.86 million expected, 8.06 million previously)
Earnings: No noticeable gain.
Wednesday
Economic data : MBA Mortgage Applications, Week Ended June 28 (0.8%); ADP Private Payrolls, June (+158,000 expected, +152,000 prior); S&P Global US Services PMI, June Final (52.3 expected, 55.1 prior); S&P Global US Composite PMI, June Final (54.6 prior); ISM Services Index, June (52.5 expected, 53.8 prior); ISM Services Prices Paid, June (58.1); Factory Orders, May (0.3% expected, 0.7% prior); Durable Goods Orders, End of May (0.1%)
Earnings: Constellation Brands (STZ)
THURSDAY
Markets are closed for the July 4th holiday.
Friday
Economic calendar: Nonfarm payroll, June (+188,000 forecast, +272,000 previously); Unemployment rate, June (4% forecast, 4% previously); Average hourly wage, month-to-month, June (+0.3% forecast, +0.4% previously); Average hourly wage, year-to-year, June (+3.9% forecast, +4.1% previously); Average hours worked per week, June (34.3 forecast, 34.3 previously); Labor force participation rate, June (62.6% forecast, 62.5% previously)
Earnings: No significant income.
Josh Schafer is a reporter for Yahoo Finance. Follow him on @_joshschafer.
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