Market Update – July 8th, 2024


Author:  Joe Maas, CIO SPG Advisors LLC

Monday, July 8th, 2024

Financial Markets


It was a quieter, shortened week due to the Fourth of July holiday, however crucial economic data was still released, including a cooler-than-expected June jobs report and the ISM Manufacturing and Services Indexes. By the close of Friday, July 5th, the NASDAQ Composite gained +3.5%, the S&P 500 rallied by +1.95%, and the Dow Jones Industrial Average rose by +0.66%. Additionally, the Barclays Aggregate Bond Index posted a positive week on hopes of a soft landing and rate cuts ahead, up +0.53% as of Friday.

Chart: By the close of Friday, July 5th, the NASDAQ Composite gained +3.5%, the S&P 500 rallied by +1.95%, and the Dow Jones Industrial Average rose by +0.66%. Additionally, the Barclays Aggregate Bond Index posted a positive week on hopes of a soft landing and rate cuts ahead, up +0.53% as of Friday.

Market News

June Jobs

June’s jobs report presented a mixed picture of US labor markets, with slightly better-than-expected job gains, though it also highlighted a small, unexpected rise in the unemployment rate. Nonfarm payrolls rose by +206,000 in June, surpassing estimates of 190,000. On the other hand, the unemployment rate rose unexpectedly to 4.1%, marking the highest level since November 2021.

In addition to the headline numbers, the report also showed that average hourly earnings increased by +0.3% in the month of June, aligning with expectations. The average workweek remained stable at 34.3 hours. The markets reacted to the report as a signal of a soft landing for the economy, with this sentiment increasing the probability of a rate cut by the Federal Reserve in September, with futures markets indicating a 78.3% chance of the first rate cut by the September FOMC meeting (CME FedWatch).

Chart: Unemployment rate, seasonally adjusted June 2022 - June 2024 and Chart 2: Nonfarm payroll employment over-the-month change, seasonally adjusted June 2022 - June 2024

Source: Bureau of Labor Statistics


ISM Manufacturing

 Economic activity in the manufacturing sector continued to contract in June, marking the third consecutive month of decline and the 19th contraction in the last 20 months, according to the latest ISM Manufacturing Index registering at 48.5. The Institute for Supply Management reported that manufacturing activity remained in a downturn at the close of the second quarter, characterized by weak demand, declining output, and accommodative input conditions.

Breaking down the index, most categories saw widespread contraction with new orders, backlogs, production, employment, raw materials inventories, exports, and imports all experiencing declines. Supplier deliveries were faster, and prices continued to increase, demonstrating improved supply but at higher costs. June’s report highlights another month of slow activity in the US manufacturing sector, reflecting ongoing challenges and a sluggish landscape for the sector.

Source: Institute for Supply Management

Recession Indicators

With the recent updates to the ISM Manufacturing and Services Indexes, our recession indicator dashboard has turned more bearish, suggesting a heightened risk of an economic slowdown or recession. Although the holiday week was slower, it did bring a few soft economic data points, including the continued weakness in the ISM Manufacturing and unexpectedly soft ISM Services readings, coupled with a slightly higher unemployment rate, which is not directly reflected in our dashboard below.

In the upcoming week, the release of the Employment Trends Index will provide a better glimpse into the overall labor market dynamics following June’s weaker jobs report. Additionally, GDP reports in the coming months will be critical in assessing the growth, or lack of, in the US economy. The first estimate of Q2 GDP growth is set to be released later in July and we will be closely watching it. We will continue to regularly monitor these indicators and more, taking an informed approach to markets.

Summary

This week echoed the likelihood of a soft landing as June’s jobs report showed mixed results with nonfarm payroll rising, but an unexpected increase in the unemployment rate, hinting at a higher chance of Federal Reserve rate cuts in September. Both the ISM Manufacturing and Services Indexes indicated sector-wide weaknesses in June, suggesting an increased risk of an economic slowdown. Monitoring economic and inflationary data, especially the CPI print and the start of Q2 earnings in the week ahead, will be crucial.

In closing, we want to express our sincere gratitude to our valued readers and loyal customers for entrusting us with your financial well-being. Your continued support is the cornerstone of our success, and we are committed to serving you with the utmost dedication and professionalism. As we navigate the ever-changing financial landscape together, we encourage you to reach out to us if there have been any shifts in your risk tolerance or if you have experienced any material changes in your Investment Policy Statement objectives or constraints. Your financial goals are our top priority, and we are here to adapt and tailor our strategies to align with your evolving needs, whether they pertain to risk and return objectives or constraints such as time horizon, taxes, liquidity needs, legal issues, unique circumstances, or changes in your financial planning and retirement objectives. Your feedback and communication are essential in helping us ensure your financial success.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.

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