Investors will receive a crucial week of labor market data during the holiday-shortened trading week of July, the third quarter and the second half of 2024.
The S&P 500 (^GSPC) entered the third quarter up 14.5% so far this year, while the Nasdaq Composite (^IXIC) has gained more than 18%. The Dow Jones Industrial Average (^DJI) has gained a modest 3.8% in the first six months of the year.
With stocks approaching record highs and recent inflation trends proving more positive, all eyes have turned to the labor market for signs of weakness as the Federal Reserve continues its restrictive stance on interest rates.
The June jobs report will provide a strong look at the labor market on Friday, while updates on private payrolls and job opportunities will also be in focus throughout the week. Activity updates in the manufacturing and services sectors will also be published over the schedule.
Constellation Brands (STZ) is expected to be the focus of the company's only noteworthy earnings report during a quiet week before the big banks officially kick off their second-quarter earnings season the following week.
Markets in the United States will close early on July 3 (1 p.m. ET) and will remain closed on July 4 for Independence Day.
Look at the job market
The June jobs report is due out Friday morning and is expected to show further slowdown in the labor market.
The report is expected to show that the U.S. economy added 188,000 nonfarm jobs last month, with the unemployment rate holding steady at 4%, according to Bloomberg data. In May, the U.S. economy added 272,000 jobs, while the unemployment rate edged up slightly to 4%.
A report like this would continue to show that the labor market is “slow but not cold,” said Michael Gapen, an economist at Bank of America.
The latest reading of the US Federal Reserve's preferred inflation gauge on Friday showed inflation eased in May with prices rising at their slowest pace since March 2021.
This publication was seen as a step in the right direction in the Fed's war on inflation.
Positive trends in inflation, coupled with signs of slowing economic activity, have led economists to say that the Fed should be inclined to lower interest rates sooner rather than later.
“There are emerging signs of a weak labor market [Fed] “U.S. officials also need to pay attention to risks to the full employment side of their state,” Michael Pearce, deputy chief US economist at Oxford Economics, wrote in a note to clients.
Halftime Report
Just like in 2023, most of the stock market rally in 2024 will be driven by a few large tech stocks.
At midyear, more than two-thirds of the S&P 500's gains for the year came from Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Broadcom (AVGO). Nvidia alone was responsible for nearly a third of these gains.
Despite some short-term gains throughout the year, only two sectors have outperformed the S&P 500 this year: telecommunications services and information technology. Both are up more than 18%, compared with the S&P 500’s gain of about 15%.
This has led to continued debate over whether the second half of the year will extend the stock market rally, a hot topic on Wall Street.
Mike Wilson, chief investment officer at Morgan Stanley, recently said in a research note that given weak economic data and high interest rates, a real expansion in which non-technology sectors pick up the slack is unlikely.
“The tight range can continue, but it's not necessarily a headwind to returns per se,” Wilson said. “We believe expansion will likely be limited to high quality/large funds for now.”
More exceptional mega
Most strategists have concluded that the mega-cap tech companies have led the rally for good reason, given that their earnings have continued to outperform the market. That’s likely to be the case during second-quarter earnings as well.
Nvidia, Apple, Alphabet, Microsoft, Amazon and Meta are expected to grow earnings by a combined 31.7% in the second quarter, according to UBS U.S. equity strategist Jonathan Golub.
The S&P 500 is expected to post earnings growth of a more modest 7.8%.
This means that the lion's share of earnings growth is once again expected to come from big technology companies. A similar trend was seen in Q2 earnings revisions.
Since March 31, the Gulup study showed that earnings estimates for the S&P 500 have fallen just 0.1%, well below the usual 3.3% decline on average. This was largely due to a 3.9% upward revision for the six largest technology companies mentioned above.
As we enter the second half of the year, the debate over whether Big Tech earnings will decline will remain front and center.
Weekly Calendar
Monday
Economic data: S&P Global US Manufacturing Index, June final (51.7 expected, 51.7 previous); Construction Spending, MoM, May (0.3% expected, -0.1% prior); ISM Manufacturing Index, June (49.2 expected, 48.7 previous)
Profits: No noticeable profits.
Tuesday
Economic data: Job Opportunities, May (7.86 million expected, 8.06 million previous)
Earnings: No noticeable gains.
Wednesday
Economic data: MBA Mortgage Applications, week ending June 28 (0.8%); ADP Private Sector Pay Report, June (+158,000 expected, +152,000 previously); S&P US Global Services PMI, final June (expected 52.3, previous 55.1), S&P US Global Services PMI, final June (54.6 previous); ISM Services Index, June (52.5 expected, 53.8 previously); Paid ISM rates, June (58.1); Factory Orders, May (0.3% expected, 0.7% previous); Durable Goods Orders, May Final (0.1%)
Profits: Brand Constellation (STZ)
Thursday
Markets are closed for the Fourth of July holiday.
Friday
Economic calendar: Nonfarm Payrolls, June (+188,000 expected, +272,000 previously); Unemployment Rate, June (4% expected, 4% previously); Average Hourly Earnings, MoM, June (+0.3% expected, +0.4% previously); Average Hourly Earnings, YoY, 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)
Profits: No noticeable gains.
Josh Shaffer is a reporter with Yahoo Finance. You can follow him on X @_Joshshafer.
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