Stock Market Update

[BRIEFING.COM] The stock market opened to gains following a better-than-expected June Employment Situation Report just before the opening bell, and carried this momentum through today's trading session that saw the S&P 500 (+0.8%) and the NASDAQ Composite (+1.0%) eclipse and close at fresh record highs.

Equity futures were relatively flat in anticipation of the employment data release, but rose sharply after a decrease in unemployment, a decrease in initial jobless claims, and an increase in non-farm payrolls was reported. 

The jobs report did feature some points of weakness, namely the participation rate coming down, the percentage of employees unemployed for 27 weeks or more going up, and average weekly hours dipping to 34.2 from 34.3.

However, the market largely overlooked these figures and cruised to new record highs throughout the session. 

The optimistic employment data did stifle hopes of a July rate cut, with the fed funds futures market pricing in only a 4.7% probability of a 25 basis-point cut at the July meeting versus 23.8% a day ago, according to the CME FedWatch Tool. Atlanta Fed President Raphael Bostic (non-voting FOMC member) told CNBC the U.S. economy could still experience a long period of elevated inflation from tariffs. Bostic supported the Fed's "wait and see" approach and acknowledges that while the labor market remains healthy, hiring pace has slowed.

Treasury yields remained elevated in reaction to today's economic data and diminishing rate cut hopes, with the 10-year note yield rising five basis points to 4.35% and the 2-year note yield climbing ten basis points to 3.89%.

The stock market remained undeterred, with ten sectors finishing in the green in a day that saw advancers outpace decliners by a better than 2:1 ratio on both exchanges. 

While the participation was broad based, the technology sector (+1.1%) led the advance, bolstered by news that the Trump administration had rescinded its restrictions on the export of chip design software to China. Chip software development companies Synopsys (SNPS 547.00, +23.89, +4.6%) and Cadence Design (CDNS 327.00, +16.00, +5.2%) captured nice gains in response to the development. 

The strong performance from the technology sector contributed to the strong performance of mega-cap stocks as a whole, with the Vanguard Mega Cap Index (+1.1%) outpacing the S&P 500 (+0.8%) for the second consecutive day. 

S&P 500: +6.8% YTD

Nasdaq: +6.7% YTD

DJIA: +5.4% YTD

S&P 400: +2.3% YTD

Russell 2000: +0.9% YTD

Reviewing today's economic data:

• June Nonfarm Payrolls 147K (Briefing.com consensus 120K); Prior was revised to 144K from 139K, June Nonfarm Private Payrolls 74K (Briefing.com consensus 123K); Prior was revised to 137K from 140K, June Unemployment Rate 4.1% (Briefing.com consensus 4.2%); Prior 4.2%, June Avg. Hourly Earnings 0.2% (Briefing.com consensus 0.3%); Prior 0.4%, June Average Workweek 34.2 (Briefing.com consensus 34.3); Prior 34.3
  • The key takeaway, though, is that it wasn't weak enough to convince the market that a rate cut at the July FOMC meeting is squarely on the table. On the contrary, that is looking more like a remote possibility, with the fed funds futures market pricing in only a 4.7% probability of a 25 basis-point cut at the meeting versus 23.8% a day ago, according to the CME FedWatch Tool.
• May Trade Balance -$71.5 bln (Briefing.com consensus -$70.5 bln); Prior was revised to -$60.3 bln from -$61.6 bln
  • The key takeaway from the report is that it will factor in as a negative for the net exports contribution to Q2 GDP.
• Weekly Initial Claims 233K (Briefing.com consensus 240K); Prior was revised to 237K from 236K, Weekly Continuing Claims 1.964 mln; Prior was revised to 1.964 mln from 1.974 mln
  • The key takeaway from the report is the same as before: businesses are not busily laying off workers, but it has become more challenging for workers who have been laid off to find a new job.
• June S&P Global U.S. Services PMI - Final 52.9; Prior 53.7
• May Factory Orders 8.2% (Briefing.com consensus 7.9%); Prior was revised to -3.9% from -3.7%
  • The key takeaway from the report is that business spending picked up markedly in May, reflecting the improved activity that followed the pause on reciprocal tariffs announced in April and the subsequent de-escalation in the U.S.-China tariff measures.
• June ISM Services 50.8% (Briefing.com consensus 50.3%); Prior 49.9%
  • The key takeaway from the report is that services sector activity returned to growth mode, albeit a growth mode that is still modest at best, while the prices index dipped slightly from May. This is not a report exuding a lot of strength for the largest economic sector, but the direction of travel between May and June (up in activity and down in prices) marks a step in the right direction.