Daily market snapshot

• Stocks edge up in a quiet, shortened trading day: U.S. equity markets logged a slightly positive holiday-shortened trading session on Wednesday, with the S&P 500 rising 0.5%, though the Dow did give back a little over 20 points. This followed a gain on Tuesday that saw the S&P 500 top 5,500 for the first time, as markets continue to benefit from healthy corporate earnings data and the tailwind of an expected rate cut later this year. Technology and materials names led the way, with the former benefiting from a drop in bond yields, while the latter received a boost from higher gold prices. Given the lack of headline or data catalysts today, the modest moves across markets were not surprising, particularly in light of markets seeing low trading volume ahead of being closed for the holiday on Thursday.*
• Employment data in the spotlight: A round of labor-market readings out on Wednesday appears consistent with our view that employment conditions are softening, but not so dramatically that the health of consumer spending is in danger in the near term. The latest ADP private-payrolls report showed a gain of 150,000 for June, slightly lighter than consensus expectations and the lowest gain since January but still reflective of decent hiring demand. Meanwhile, the fresh read on initial jobless claims showed a slight tick up to 238,000.* This is in line with the average of the last four readings, so there is no worrisome shift playing out yet. While jobless claims have moved up from the levels of late-2023 and early-2024, claims remain low by historical standards, signaling a still-supportive labor-market backdrop.  All eyes will turn to Friday's official nonfarm-payroll report for a broader indication of the trends in employment conditions and the implications for consumer spending ahead.
• Interest rates fall after recent rise: Treasury yields dropped on Wednesday, with 10-year yields falling below the 4.4% mark. There was little data to change the Fed-policy outlook, but we'd attribute the day's move to the employment and ISM services activity reports that signal the pace of economic growth is softening a bit, potentially reducing some of the upward pressure on inflation ahead. Prior to Wednesday, we have seen a decisive move in longer-term rates recently. Ten-year yields had risen 20 basis points (0.20%) since late-June, which we suspect may be reflecting a hint of the move in the election polls, where an increase in expectations for a Trump win could be a catalyst for slightly firmer rates, insofar as his proposals for leveraging tariffs in trade negotiations would likely pose some upward pressure on inflation. We don't think the outlook for interest rates or Fed policy is changing meaningfully at this stage, but this is consistent with our view that rates are unlikely to trend in a straight line as markets refine Fed expectations against incoming inflation and election news.

Craig Fehr, CFA
Investment Strategy

^*FactSet

• Stocks finish higher: Stocks finished higher on Tuesday, with the S&P 500 gaining 0.6%, while the technology-heavy Nasdaq outperformed, rising by 0.8%.* Today's move followed a higher-than-expected JOLTS job-openings reading, signaling that while demand for labor has cooled in recent months, it remains strong relative to history. From a leadership standpoint, most sectors of the S&P 500 finished higher, led by consumer discretionary and financials, which each gained over 1%.* On the corporate front, shares of Tesla gained over 10% after the company reported second-quarter vehicle deliveries that exceeded expectations.* Overseas, Asian markets finished higher overnight, with Japan's Nikkei 225 Index gaining over 1%, while European markets were mostly lower in response to a eurozone inflation reading that showed core inflation was slightly higher than expected in June.* After a sharp run higher in the previous two trading sessions, bond yields took a breather today, with the 10-year Treasury yield moving lower to 4.43%.* Looking ahead, labor-market data will remain center stage for markets this week, with the release of the ADP payrolls report tomorrow and nonfarm-payrolls report on Friday.
• Jobs data in focus: Today provided a fresh read on trends in the U.S. labor market with the release of the JOLTS job openings for May. Job openings were at 8.1 million in May, higher than expectations and modestly higher from the prior reading of 7.9 million.* Despite today's higher-than-expected reading, job openings have declined meaningfully from their peak of over 12 million in March 2022, but remain above the 10-year average of roughly 7.4 million. We view the gradual decline in job openings as a sign that supply and demand imbalances for labor are beginning to normalize after a period of historically tight labor-market conditions. We expect that labor-market conditions will continue to ease in the months ahead. However, we would reiterate that we expect this to take the form of a gradual normalization from historically strong conditions versus a sharp rise in unemployment. A healthy albeit easing labor market should provide support to consumer spending and help extend the economic expansion.  
• First-half recap: Stocks rallied in the first half of 2024, driven by ongoing strength in mega-cap technology stocks. The S&P 500 gained over 15%, aided by strong performance in the information technology and communication services sectors, which both rose by over 26%.** Ongoing enthusiasm around the growth potential of artificial intelligence, along with robust corporate profit growth, has lifted these sectors higher. Looking down the market cap, small-cap and mid-cap stocks posted more modest gains in the first half, with small-caps rising by 1.7% and mid-caps by 5%. Overseas, both international developed large-cap and emerging-market stocks posted gains of 5% or better. Improving economic growth in Europe, albeit from low rates, and strong corporate profit growth in Japan supported international developed large-cap stocks, while emerging-market stocks were aided by measures from Chinese policymakers to support the nation's slumping property market. On the fixed-income side, higher yields in the first half led to a 0.7% decline in U.S. investment-grade bonds, while ongoing economic momentum supported lower-quality issuers, with emerging-market debt and U.S. high-yield bonds each gaining over 2%.

Brock Weimer, CFA
Associate Analyst

^{*FactSet **Morningstar Direct, total return in USD. 1/1/2024 – 6/30/2024.}

• Stocks start the second half of 2024 higher – Stock markets closed modestly higher on Monday to kick off the new month and the second half of 2024. The tech-heavy Nasdaq outperformed both the S&P 500 and Dow Jones. This was the same trend in the first half of 2024, as the Nasdaq was higher by over 17%; followed by the S&P 500, up over 14%; and the Dow Jones lagged, up just over 4%*. Meanwhile, bond yields also climbed higher, with the 10-year Treasury yield up on Monday by about 0.08%, to 4.48%, well above recent lows of around 4.22%*. Markets will be watching the Fed, inflation, and labor-market data closely in the second half of the year as key drivers of the economy and equity markets. In our view, if inflation moderates and the labor market cools, the Fed remains poised to begin rate cuts by year-end, which should be supportive of both stocks and bonds.
• All eyes turn to U.S. labor-market data: This Friday, the U.S. nonfarm-jobs report for the month of June will be released, and the expectation is for an addition of 190,000 new jobs, below last month's 272,000 jobs added*. The unemployment rate is expected to remain steady at 4.0%, while the labor-force participation rate is forecast to tick higher, from 62.5% to 62.6%. The average hour earnings figure is expected to modestly cool, from 4.1% year-over-year to 3.9%*. In our view, the labor market will be a key driver of both consumer spending and services inflation. We are starting to see signs of a cooling in the labor market, with more supply of labor being added, while demand for labor is softening. If we continue to see a cooling and not a rapid deceleration in the labor market, this should be supportive of easing consumption and lower inflation, and it should give the Fed more confidence to begin a rate-cutting cycle.
• Markets continue to expect two Fed rate cuts this year: The next Federal Reserve meeting will be held on July 31, and markets expect the Fed to keep rates on hold at 5.25% - 5.5% at this meeting**. However, according to CME FedWatch, market expectations are for two rate cuts in 2024, most likely at the September and December meetings. We believe one or two Fed rate cuts this year are a likely scenario, especially if we see inflation continuing to move lower toward the Fed's 2.0% target. Inflation may continue to moderate as the shelter and rent components of inflation play catch-up to real time data that show easing, and if the labor market cools and wage growth moderates. In our view, the Fed may adopt a quarterly cadence of rate cuts because it is more systematic and removes some uncertainty and potential volatility as the Fed gradually brings rates to a more neutral level over the next several quarters.

Mona Mahajan
Investment Strategist

^{*FactSet ** CME FedWatch}

• Stocks close lower - Major equity indexes closed lower on Friday, with large-cap stocks trailing small- and mid-cap stocks*. Sector performance was mixed, with real estate and energy leading to the upside, and with communication services and consumer discretionary among those that were lower *. In global markets, Asia was up on stronger-than-expected Japan industrial-production growth of 2.8%. Europe was broadly lower as investors evaluated new inflation data. The U.S. dollar was down modestly versus major currencies. In the commodity space, WTI oil and gold traded lower.
• Key inflation measures edge lower: The Fed's preferred inflation measure, the core personal consumption expenditure (PCE) price index, which excludes food and energy prices, rose 2.6% year-over-year through May, as expected, and is down from 2.8% the prior month**. Headline PCE was also in line with estimates at 2.6% over the past 12 months, compared with 2.7% the prior month**. Consumption expenditures rose 0.2%, up modestly from April's reading of 0.1%**, but still reflecting that consumers are pulling back on spending. While core PCE remains above the Fed's target of 2%, we expect inflation to continue to moderate in the back half of the year, driven in part by lower shelter inflation and slower wage growth. Government measures of shelter inflation, including CPI and PCE, have been lagging market-based measures, such as Zillow's Observed Rent Index***, which show housing costs rising at a slower rate. Labor markets are also gradually cooling, reflected in fewer job openings and slowly rising unemployment.
• Bond yields rise - Bond yields were up, with the 10-year Treasury yield at about 4.39%. Bond markets continue to price in expectations for two Fed rate cuts this year following the PCE report, which reflected that inflation is slowing in line with estimates. Our expectations are that continued signs inflation is moderating should keep the Fed on track for one or two rate cuts later this year, which would be favorable for the economy and markets broadly.

Brian Therien, CFA
Investment Strategy

^{*FactSet ** U.S. Bureau of Economic Analysis *** Zillow}