A crucial week of labor market data will greet investors during a holiday-shortened trading week beginning in July, the third quarter and second half of 2024.
The S&P 500 (^GSPC) enters the third quarter up 14.5% so far this year, while the Nasdaq Composite (^IXIC) is up more than 18%. The Dow Jones Industrial Average (^DJI) gained a more modest 3.8% in the first six months of the year.
With stocks sitting near record highs and recent inflation trends turning more positive, all eyes have turned to the labor market for signs of weakness as the Fed maintains its restrictive interest rate stance.
The June Jobs report will provide a strong look at the labor market on Friday, while updates on private payrolls and job openings will also be in focus throughout the week. Updates on activity in the manufacturing and services sectors will also be spread throughout the hour.
Constellation Brands ( STZ ) is expected to be the focus of the only notable corporate earnings report in a quiet week before the big banks officially kick off their second-quarter earnings season next week.
US markets will close early on July 3 (1 p.m. ET) and remain closed on July 4 for Independence Day.
A look at the labor market
The June Jobs report is expected to be released on Friday morning and is expected to show further cooling in the labor market.
The report is expected to show that 188,000 non-farm payroll jobs were added to the US economy last month, with unemployment remaining steady at 4%, according to data from Bloomberg. In May, the US economy added 272,000 jobs, while the unemployment rate rose slightly to 4%.
Bank of America US economist Michael Gapen reasoned that a report along those lines would continue to point to a job market that is “cooling, but not cold”.
On Friday, the latest reading of the Fed’s preferred inflation gauge showed inflation eased in May as prices rose at their slowest pace since March 2021.
The crackdown was seen as a step in the right direction for the Federal Reserve’s fight against inflation.
Positive inflation trends, combined with signs of slowing economic activity, have led economists to argue that the Fed should move toward cutting interest rates sooner rather than later.
“The appearance of signs of softness in the labor market [Fed] Officials should also be mindful of risks to the full employment side of their mandate,” Oxford Economics deputy chief US economist Michael Pearce wrote in a note to clients.
First half report
Like 2023, much of 2024’s stock market rally has been driven by a few big tech stocks.
At midyear, more than two-thirds of the S&P 500’s gains for the year have come from Nvidia ( NVDA ), Apple ( AAPL ), Alphabet ( GOOG , GOOGL ), Microsoft ( MSFT ), Amazon ( AMZN ), Meta ( META ), and Broadcom (AVGO). Nvidia alone has delivered nearly a third of these gains.
Despite some short-lived gains throughout 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.
That has kept the debate over whether the second half of the year will bring an extension of stock market growth a hot topic on Wall Street.
Morgan Stanley’s chief investment officer, Mike Wilson, recently argued in a research note that given weak economic data and high interest rates, a real expansion in non-tech sectors is feeling the pinch. unlikely to happen.
“Narrow breadth may continue, but it’s not necessarily a headwind to advancing returns per se,” Wilson said. “We believe expansion is likely to be limited to high-quality/large-cap pockets for now.”
More megacap franchises
Most strategists have reasoned that megacap tech companies have led the rally for good reason, given that their earnings continue to outperform the market. It is expected to be the same during the earnings of the second quarter.
Nvidia, Apple, Alphabet, Microsoft, Amazon and Meta are expected to grow earnings by a combined 31.7% in the second quarter, according to UBS Investment Bank U.S. equity strategist Jonathan Golub.
The S&P 500 itself is expected to increase earnings by a more modest 7.8%.
That means most of the earnings growth is expected to come from Big Tech again. And a similar trend has been seen in Q2 earnings revisions.
Since March 31, Golub’s work shows that earnings estimates for the S&P 500 have fallen just 0.1%, far less than the typical 3.3% drop seen on average. This is mainly due to a 3.9% upward revision for the six largest technology companies mentioned above.
Entering the second half of the year, the debate over whether these big tech companies’ ongoing earnings rates will decline will remain in the spotlight.
Weekly calendar
Monday
Economic data: S&P Global US manufacturing, June final (51.7 expected, 51.7 previously); Construction spending, month-on-month, May (0.3% expected, -0.1% previously); ISM Manufacturing, June (49.2 expected, 48.7 previously)
Earnings: No apparent gain.
Tuesday
Economic data: Job openings, May (7.86 million expected, 8.06 million previously)
Earnings: No apparent gain.
Wednesday
Economic data: MBA mortgage applications, week ended June 28 (0.8%); Private ADP Payrolls, June (+158,000 expected, +152,000 previously); S&P global US Services PMI, end-June (52.3 expected, 55.1 previously), S&P Global US PMI composite, end-June (54.6 previously); ISM services index, June (52.5 expected, 53.8 previously); Prices of ISM services paid, June (58.1); Factory orders, May (0.3% expected, 0.7% previously); Durable goods orders, end of May (0.1%)
Earnings: Constellation Marks (STZ)
Thursday
Markets are closed for the 4th of July holiday.
Friday
Economic calendar: Non-farm payrolls, June (+188,000 expected, +272,000 previously); Unemployment rate, June (4% expected, 4% previously); Average hourly earnings, month over month, June (+0.3% expected, +0.4% previously); Average hourly earnings, year-over-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)
Earnings: No apparent gain.
Josh Schafer is a reporter for Yahoo Finance. Follow him to X @_joshschafer.
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