Market Update – June 10th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, June 10th, 2024

Financial Markets

Stocks continued their rally last week on hopes that the US economy is headed for a soft landing, with the May jobs report, the ISM Services Index, and the ISM Manufacturing Index all being major data releases. As of the close on Friday, June 7th, the Nasdaq Composite rose +2.38%, the S&P 500 rose +1.32%, the Dow Jones Industrial Average rose +0.29%, and the Barclays Aggregate Bond Index rose +0.1% for the week.

Market News
May Jobs Report

This week’s jobs report presented an intriguing mix of developments in a labor market that has been gradually cooling, yet generally not causing significant concern among most workers. Unemployment ticked up to 4% in May, rising from April’s 3.9% and higher than the anticipated 3.9%.

On the other hand, nonfarm payrolls saw growth, adding +272,000 jobs in May, surpassing estimates of 180,000. This apparent contradiction, where unemployment rose despite a substantial increase in new jobs, can occur when more individuals enter the labor force. Finally, within the May jobs report, the average workweek remained steady at 34.3 hours.

Source: US Bureau of Labor Statistics

Looking beyond the May data alone, the labor market has been gradually loosening over the past year or two. Examining the one-year percent change in unemployment suggests a continued upward trend, often signaling a higher unemployment rate ahead if the trend persists. It will be interesting to see the Federal Reserve’s unemployment projections through the end of 2024, set to be released on Wednesday, June 12th at their June FOMC meeting.

ISM Manufacturing

In May, the ISM Manufacturing Index came in lower than anticipated, clocking in at 48.7 for the month, 0.5 lower than April’s index. This marks the second straight month of contraction in the manufacturing sector following March’s slightly positive reading of 50.3, with 18 out of the last 19 months seeing contractionary territory in the index.

Within the index, new orders and backlogs declined suggesting a softer month of new demand, while production and employment showed growth during May. In the commentary of the report, respondents noted that the manufacturing industry has been experiencing a slight slowdown, indicating a stable yet somewhat subdued market environment.

Source: ISM

ISM Services

The ISM Services Index for May surpassed expectations, reaching 53.8. This marked a rebound from a contraction in April, which was the first since December 2022 and also represented a 9-month high. Increased business activity and new service orders drove the index higher in May. On the other hand, the employment component of the index weighed on May’s ISM Services, mainly due to difficulties in filling positions and managing labor expenses. Respondents to the survey also highlighted inflation and current interest rates as obstacles to improving business conditions.

Source: ISM

June Fed Meeting This Week

The upcoming Federal Reserve meeting on Wednesday, June 12th holds significant importance for markets eagerly awaiting key guidance on monetary policy. During this meeting, the central bank will not only discuss monetary policy but also release their Summary of Economic Projections (SEP), providing insights into Federal Reserve Members’ perspectives on economic growth, unemployment, inflation, and interest rates in the coming years.

Against the backdrop of rate cuts by both the European Central Bank and Bank of Canada last week, aimed at tempering inflation without triggering recession, investors are keenly observing the Fed’s stance as this will likely be a determining factor if the rally pushes higher into the summer or stalls out.

No rate cut is expected at the Fed’s June meeting, however the market is currently pricing in a 50.8% chance of a cut by the September meeting, so the guidance provided from Fed Chair Jerome Powell will be imperative to guiding expectations for FOMC meetings ahead

Source: CME Group

Summary

Last week saw a continued rally in the markets, driven by a mixed jobs report that suggests the Federal Reserve may need to hold rates longer or continue with their current trajectory of potentially cutting rates this fall. The ISM Manufacturing index remained weak, while the ISM Services index highlighted the ongoing strength of the US economy. Looking ahead to this week, the Federal Reserve’s meeting on Wednesday will be pivotal in gauging the central bank’s future monetary policy actions, as the Fed will post their quarterly Summary of Economic Projections.

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.