Market Minute July 5, 2024

For the shortened trading week of July 4th, the S&P 500 index gained nearly 1.26% through Thursday as traders anticipated the jobs report on Friday morning. US hiring and wage growth decreased in June while the jobless rate ticked up, bolstering prospects that the Federal Reserve will begin cutting interest rates in coming months. In our estimation, rate cuts seem more likely in 2025 but the economy could begin to slow more rapidly, and that would increase the likelihood of a rate cut in the current year.

Nonfarm payrolls rose by 206,000 and job growth in the prior two months was revised down by 111,000, the Bureau of Labor Statistics said Friday. Economist forecasted an increase of 190,000.

The unemployment rate rose to 4.1% as more people entered the labor force, and average hourly earnings decreased. Rising unemployment is something the Fed wanted to see as part of their path to lowering rates. However, it causes some concern that the unemployment is rising due more to people entering the workforce vs companies trimming staff. In our opinion, companies will increase the rate at which they are laying off workers. Coupled with people coming back to the workforce, unemployment rate could begin to accelerate.

The latest figures underscore a labor market that cooled more in the second quarter than estimated. The data are consistent with other reports showing a sharp decline in job openings this year and a growing number of people filing for unemployment benefits. 

“The downward revisions to the previous two months combined with the rise in the unemployment rate are the significant data points. Wage growth also is slowing,” said Kathy Jones, chief fixed-income strategist at Charles Schwab. “All of that adds up to a slower trend.”

The participation rate — the share of the population that is working or looking for work — rose to 62.6%. The rate for workers ages 25-54, also known as prime-age workers, increased to a 22-year high of 83.7%.

Bottom line, we believe the jobs report confirms what we have been writing for a while, the economy is slowing, the consumer is being stretched and buying power is decreasing. We continue to be diligent in our stock selection process, sticking to our disciplined process and rules-based security selection. Cash continues to be an attractive holding, still yielding close to 5%.

Enjoy a wonderful weekend. ~ Roger

*Bloomberg