A key week of labor market data is set for investors during a holiday-shortened trading week that begins in July, the third quarter and the second half of 2024.
The S&P 500 (^GSPC) enters Q3 up 14.5% so far this year, while the Nasdaq Composite (^IXIC) has gained more than 18%. The Dow Jones Industrial Average (^DJI) has gained a more modest 3.8% in the first six months of the year.
With stock prices nearing record highs and recent inflation trends proving more positive, all eyes are on the labor market for signs of weakness as the Fed maintains its restrictive interest rate policy.
The June Jobs Report will provide a robust picture of the labor market on Friday, while updates on private payrolls and vacancies will also be in focus throughout the week. Updates on activity in the manufacturing and services sectors will also appear throughout the program.
Constellation Brands (STZ) is expected to be the focus of the only significant earnings report during an otherwise quiet week before the big banks officially start reporting on their second quarter the following week.
US markets will close early on July 3 (1:00 p.m. ET) and remain closed on July 4 for Independence Day.
A look at the labor market
The June jobs report will be published Friday morning and is expected to show a further cooling in the labor market.
The report is expected to show that 188,000 nonfarm payroll jobs were added to the U.S. economy last month, with unemployment holding steady at 4%, according to Bloomberg data. In May, the US economy added 272,000 jobs, while the unemployment rate rose slightly to 4%.
US economist Michael Gapen of the Bank of America reasoned that a report along these lines would continue to point to a labor market that is ‘cooling but not cool’.
On Friday, the latest reading from the Fed’s inflation gauge showed that inflation eased in May as prices rose at the slowest pace since March 2021.
The print was seen as a step in the right direction for the Federal Reserve’s fight against inflation.
Positive trends in inflation, combined with signs of a slowdown in economic activity, have economists arguing that the Fed should cut rates sooner than expected.
‘There are emerging signs of weakness in the labor market [Fed] Officials must also be alert to 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.
Halftime report
As in 2023, most of the stock market rally in 2024 was driven by a few big tech stocks.
Halfway through the year, more than two-thirds of the S&P 500’s gains for the year came from Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META) and Broadcom (AVGO). Nvidia alone accounted for nearly a third of those gains.
Despite some short-lived rallies during the year, only two sectors have outperformed the S&P 500 this year: communications services and information technology. Both are up more than 18% compared to the S&P 500’s roughly 15% gain.
This has kept the debate going over whether the second half of the year will bring a broadening of the stock market rally, a hot topic on Wall Street.
Morgan Stanley Chief Investment Officer Mike Wilson recently argued in a research note that given weakening economic data and high interest rates, a true broadening in which non-tech sectors pick up the slack is unlikely to occur.
“Some breadth may remain, but it’s not necessarily a headwind to boosting returns per se,” Wilson said. “We think broadening will remain limited to high-quality/large-cap stocks for the time being.”
More megacap exceptionalism
Most strategists argue that mega-cap tech companies have led the rally for a reason, as their earnings continue to outperform the market, and they expect that to continue during the second-quarter results.
Nvidia, Apple, Alphabet, Microsoft, Amazon and Meta are expected to grow earnings by a combined 31.7% in the second quarter, according to U.S. equity strategist Jonathan Golub at UBS Investment Bank.
The S&P 500 itself is expected to post modest earnings growth of 7.8%.
This means that the lion’s share of profit growth is once again expected to come from Big Tech. And a similar trend is seen in Q2 earnings revisions.
Golub’s work shows that earnings estimates for the S&P 500 have fallen just 0.1% since March 31, far less than the typical 3.3% decline seen on average. This is in large part due to an upward revision of 3.9% for the aforementioned six largest technology companies.
In the second half of the year, the debate over whether these Big Tech companies’ consistent earnings will continue to decline will continue to take center stage.
Weekly calendar
Monday
Economic data: S&P Global US manufacturing, June final (51.7 ET, 51.7 ET); Construction spending, month-on-month, May (0.3% ET, -0.1% ET); ISM Manufacturing, June (49.2 ET, 48.7 ET)
Merits: No notable earnings.
Tuesday
Economic data: Vacancies, May (7.86 million expected, 8.06 million previously)
Merits: No significant merits.
Wednesday
Economic data: MBA mortgage applications, week ending June 28 (0.8%); ADP private payrolls, June (+158,000 expected, +152,000 earlier); 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 earlier); Paid ISM services prices, June (58.1); Factory orders, May (0.3% expected, 0.7% earlier); Durable goods orders, May final (0.1%)
Merits: Constellation Brands (STZ)
Thursday
The markets are closed for the July 4th holiday.
Friday
Economic calendar: Nonfarm payrolls, June (+188,000 expected, +272,000 previously); Unemployment rate, June (4% expected, 4% previously); Average hourly wage, month-on-month, June (+0.3% expected, +0.4% previously); Average hourly wage, year-on-year, June (+3.9% expected, +4.1% previously); Average weekly hours worked, June (34.3 expected, 34.3 previously); Labor force participation rate, June (62.6% expected, 62.5% previously)
Merits: No significant income.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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