The S&P 500 continued its very strong performance this year and reached a new high Wednesday before inching lower on Friday. The strong employment report on Friday pushed markets slightly lower by reducing the number of expected interest-rate cuts by the Federal Reserve. The S&P 500 climbed 1.7% for the week. The MSCI ACWI gained 1.2%. The Bloomberg BarCap Aggregate Bond Index slipped 0.1% as yield rose in response to the jobs data.
Key Points for the Week
- U.S. jobs data exceeded expectations by a wide margin, and wage growth remains healthy.
- The Fed is still expected to cut rates in July, but good economic data will likely reduce the number of cuts and their frequency.
- The S&P 500 reached a new record.
U.S. Labor Market
Sometimes good news is bad news as investors are more interested in lower interest rates than a strong economy. On Friday, this perverse logic was expressed when the market dipped in response to a strong employment report. The U.S. economy is slowing but not as badly as many hoped or feared. If the economy isn’t as bad as expected, then the Fed won’t need to lower rates as many times.
The U.S. added 224,000 new jobs in June, beating expectations of 170,000 new jobs. The number is the largest gain since January and points to a sustained underlying economic recovery. Many investors doubted the robust labor market would continue after last month’s dismal 75,000 gain, which was revised down to 72,000 in this month’s report.
The U.S. unemployment rate increased slightly to 3.7% from 3.6%. The slight gain can be attributed to an increase in people looking for jobs, which is a sign of optimism.
The U.S. average hourly earnings year-over-year growth remained above 3%, at 3.1%. Although expectations had been for a 3.2% hike, 3.1% means workers continue to see wage gains above inflation and are benefitting from the strong economic recovery.
There are enough uncertainties for the Fed to ratchet rates slightly lower. Our expectation is the Fed will still cut rates in July by 0.25%. The jobs report makes additional cuts less certain. Strong economic data, like last month’s employment figures, are likely to slow the pace at which the Fed cuts rates and reduce the number of cuts, too.
The island of Jersey, near the coast of Normandy, France, is being terrorized by a pack of feral chickens. The chickens have been tearing up gardens, blocking traffic, chasing joggers and even waking residents up at 3 a.m. Officials have asked residents to stop feeding them or avoid leaving food out that the chickens could eat. Jersey was occupied by the Germans during World War II, so it should be able to handle the chickens.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds
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