Market Overview
The S&P 500 reached a new milestone on Friday, closing at a record high following an optimistic jobs report that has fueled expectations for Federal Reserve rate cuts. The broad market index climbed 0.54%, finishing the session at 5,567.19. Meanwhile, the Nasdaq Composite surged 0.90% to close at 18,352.76, with both indexes setting new all-time highs. The Dow Jones Industrial Average also saw gains, rising 0.17% or 67.87 points to end at 39,375.87. This marks the S&P 500's 34th record close in 2024, bringing its year-to-date rally to 16.7%. Investors are increasingly betting that any economic slowdown later this year will prompt the Federal Reserve to cut rates. The Nasdaq has outperformed, boasting a 22.3% gain so far this year.
Jobs Report Spurs Rate Cut Speculation
Friday's labor data showed a 206,000 increase in nonfarm payrolls for June, accompanied by a slight rise in the unemployment rate to 4.1%, contrary to economists' expectations for it to hold steady at 4%. This news led to a drop in Treasury yields, as markets anticipate that the uptick in unemployment might encourage the Fed to lower interest rates. The probability of a quarter-point rate cut in September has risen to approximately 77%, up from 64% the previous week, according to CME Group’s FedWatch Tool.
Market Reactions and Key Performers
Seema Shah, Principal Asset Management’s chief global strategist, noted, “The rise in unemployment rate enhances the likelihood of a September rate cut, which bond markets are celebrating. However, the data also raises concerns about the U.S. economy’s direction.” Tesla led the market with a 2% gain, marking a weekly increase of about 27%, while Apple shares jumped over 2% to hit new highs. Nvidia saw a nearly 2% decline following a rare downgrade, but still ended the week up about 1.9%.
Weekly Market Performance
All major indexes finished the week on a positive note. The Nasdaq Composite advanced 3.5%, the S&P 500 gained nearly 2%, and the Dow added around 0.7%. The markets were closed on Thursday for Independence Day.
Amazon's Potential and Future Outlook
Victoria Greene of G Squared Private Wealth suggested Amazon could soon join the $3 trillion market capitalization club, alongside Apple, Microsoft, and Nvidia. Amazon’s diverse business segments, particularly AWS, are expected to drive future growth.
Inflation Focus for the Upcoming Week
Key inflation readings next week could further support the case for a September rate cut, as investors consider the sustainability of the current market rally.
JPMorgan's Performance and Upcoming Earnings
JPMorgan Chase's stock rose 1.4% this week, ahead of its second-quarter earnings report due next Friday. Other major bank stocks like Goldman Sachs also performed well, up about 2.5%.
Constellation Brands’ Potential Comeback
JPMorgan analysts believe Constellation Brands can recover from its recent sell-off, driven by favorable trends in U.S. alcoholic beverage consumption and distribution expansion for its core beer segment.
Apple’s Weekly Gains and Nvidia's Insider Sales
Apple’s shares rose nearly 7% this week, while Nvidia CEO Jensen Huang sold nearly $60 million worth of stock, reflecting strategic sales under a trading plan.
U.K. Growth Forecast Following Election
Goldman Sachs has upgraded its growth forecast for the U.K. following the Labour Party’s election victory, with GDP growth projected to rise slightly in 2025 and 2026.
Small Cap Performance and Economic Data Highlights
Small-cap stocks lagged this week, with the Russell 2000 index down more than 1%. Despite this, major indexes continued their upward trend. Economic data for the week highlighted a cooling labor market, with mixed signals from manufacturing and services sectors.
Oil Prices and Fed Rate Cut Expectations
U.S. crude oil prices topped $84 per barrel, reaching two-month highs amid forecasts of tighter inventories and geopolitical tensions. The jobs report has also increased expectations for Federal Reserve rate cuts in September and December.
Health Care and Government Job Growth
June’s job growth was primarily driven by health care, social assistance, and government jobs, while professional and business services saw a decline. This trend underscores a modest cooling in the labor market.
Data Releases:
- Monday (July 8): Consumer Credit
- Wednesday (July 10): EIA Crude Oil Inventories, MBA Mortgage Applications Index, Wholesale Inventories
- Thursday (July 11): Continuing Claims, Consumer Price Index (CPI), Core CPI, EIA Natural Gas Inventories, Initial Claims, Treasury Budget
- Friday (July 12): Producer Price Index (PPI), Core PPI, University of Michigan Consumer Sentiment - Preliminary
Economic Data, Rates & the Fed:
Despite the holiday-shortened week, traders had a significant amount of economic data to process. The job gains for June surpassed expectations, but there were substantial downward revisions for the previous two months (-111K), and the unemployment rate rose to its highest level since November 2021. These indicators, combined with weak manufacturing and services data, suggest a slowing economy, strengthening the case for a Federal Reserve rate cut. The Atlanta Fed's GDPNow forecast for Q2 was revised down to 1.5% on Wednesday from 1.7% on Monday.
Key highlights from this week's economic reports include:
- Nonfarm Payrolls: 206K (above the 170K forecast); previous two months revised down by 111K; unemployment rate increased to 4.1% from 4.0% (expected 4.0%), the highest since November 2021; average hourly earnings rose 0.3% month-over-month (in line with estimates) and 3.9% year-over-year.
- ISM Manufacturing Index: 48.5, below the 49.6% expected, marking the third consecutive month and the 19th out of the last 20 months of contraction (50 is the threshold for expansion/contraction). New Orders Index rose to 49.3 from 45.4 in May; Prices Index dropped to 52.1 from 57.0.
- ISM Services PMI: 48.8, down from 53.8 the previous month and below the 53.0 expected, representing a four-year low. Prices Index fell to 56.3 from 58.1.
- JOLTS – Job Openings: 8.14M, above the 7.9M expected and the previous month's (revised) 7.9M.
- ADP Employment Change: 150K, below the 163K estimate and the prior month's (revised) 157K. Wage gains for those who remained in their jobs increased 4.9% year-over-year, the smallest rise since August 2021.
- Initial Jobless Claims: 238K, above the 235K estimate and higher than the previous week's (revised) 234K.
Play of the Week: $HD (Home Depot)
Key Levels and Potential Movements
Current Price Action: Home Depot (HD) is currently experiencing a minor downtrend, hovering around the $324-$325 range. With gaps above and below the current range, look for one of the gaps to be filled then movement in the other direction.
Support Area: Watch for a potential bounce around the $324-$325 area.
Resistance Breakout: If HD breaks above $344, anticipate further upward movement towards $346-$350.
For Long Positions: Consider entering around the support zone of $324-$325, if confirmed by price action.
Monitor Breakout: Wait for a clear breakout above $344 for a sustained bullish move towards $346-$350.
Risk Management: If HD fails to hold above $324-$325, consider re-evaluating for potential downside risk.
Short Positions: Keep eyes on the gap beginning at the $300 level for potential downside.
Before making any investment decisions, conducting thorough research and considering consulting with a financial advisor is crucial. This analysis is based on previous price action, which does not indicate future price action.
Conclusion
The S&P 500 and Nasdaq Composite continue to set records as investors remain optimistic about potential Federal Reserve rate cuts, despite mixed economic signals. The coming week will be crucial as inflation data and corporate earnings reports provide further direction for the markets.
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