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Could investors be on the verge of the long-awaited soft-landing scenario?

Weekly market perspectives

Stocks closed the shortened trading week higher, as the S&P 500 Index posted its fourth positive week in the last five. The Index made its 34th record closing high of the year on Friday after markets were closed on Thursday in observance of the Independence Day holiday. The NASDAQ Composite also finished the week higher, seeing its fifth straight week of gains and hitting fresh new all-time highs. Softer but still solid, employment data kept odds of a September rate hike on the table, while updates on manufacturing and services activity showed further signs of economic normalization.            

Last Week in Review:

  • The S&P 500 Index rose +2.0%. Market participation continues to show a very narrow focus across a select group of stocks, with Communication Services (+3.9%), Information Technology (+3.9%), and Consumer Discretionary (+3.8%) seeing strong gains last week. However, five of eleven S&P 500 sectors closed the week lower.
  • With Big Tech stocks continuing to lead the market higher, the NASDAQ Composite surged +3.5%.
  • The Dow Jones Industrials Average again trailed, rising +0.7%, while the Russell 2000 Index slumped 1.0%.

“Several areas of the job market that were running hot last year have cooled this year, helping ease pressures on inflation and rebalance labor conditions.”

Anthony Saglimbene - Chief Market Strategist, Ameriprise Financial

  • Nonfarm payrolls in June rose +206,000, ahead of the roughly +190,000 jobs expected. However, the unemployment rate last month ticked higher to 4.1% from 4.0% in May, while May and April jobs were revised down 168,000. Notably, the previous five months of jobs reports have seen employment gains revised lower from the initial release.
  • ISM Manufacturing remained in contraction in June, missing estimates, though saw new orders modestly improve. However, ISM Services also missed estimates and fell back into contraction, seeing its lowest print since May 2020. Importantly, disinflation traction gained momentum across the economy last month, with “prices paid” falling to March levels in the services report and December 2023 levels in the manufacturing report.
  • Bond volatility remained in play, with Treasury yields rising at the start of the week as markets began pricing in a more sweeping Republican election victory in November. However, weaker economic data throughout the week, which kept a Federal Reserve rate cut on the table for September, sent U.S. Treasury yields lower on the week. Odds of a Fed rate cut in September ended the week at roughly 78%, up from approximately 65% the prior week.
  • The U.S. Dollar Index finished lower by 0.9%, Gold rose by +2.8%, and West Texas Intermediate (WTI) crude gained +0.4%.
  • The pressure from campaign donors and some leading Democrats for President Biden to exit the U.S. presidential race intensified. Several public appearances by the President, as well as an interview with ABC News, failed to quell growing concerns about his mental fitness for the job. In the ABC News interview, Biden said he would remain in the race.
  • Finally, the UK’s Labour Party returned to power after a historic landslide election victory, securing a majority in the House of Commons for the first time in fourteen years. Sir Keir Starmer replaces ousted Conservative Rishi Sunak as Prime Minister. Labour secured its election victory as voters have grown increasingly frustrated by a series of political and fiscal missteps by Conservatives over the years.

Is the U.S. labor market slowing into a soft-landing scenario?

As noted above, job growth in the U.S. was healthy in June, despite the unemployment rate ticking higher and job gains over previous months being revised lower when the Bureau of Labor Statistics takes a second look. Though open roles in the U.S. unexpectedly climbed to 8.14 million in May from 7.91 in April, the job openings rate was little changed at 4.9%. In the June nonfarm payrolls report, average hourly earnings (a measure of wage inflation) came in line with expectations and sits at its lowest level since May 2021. Notably, job growth has cooled over recent months across Leisure & Hospitality, Professional & Business Services, and Construction. Much of the gains in employment over recent months have come from areas like Education & Health Services and Government. Bottom line: Several areas of the job market that were running hot last year have cooled this year, helping ease pressures on inflation and rebalance labor conditions.

According to Ameriprise Chief Economist Russell Price, CFA, the job market is showing widespread evidence of a long-awaited slowdown. Still, we believe job growth should remain solid enough, and unemployment rates should be low enough to further support consumer income and spending and, by extension, corporate earnings growth.

Corporate profit results and outlooks likely hold the keys to the market’s next move.

Despite stocks hitting new highs, bullish sentiment in the American Association of Individual Investors Survey dropped down to its lowest level since early June last week. Although strong historical returns in the early part of July could keep investor sentiment positive on stocks over the near term, August and September are historically the weakest two-month run of the year for stocks.

And while relatively high market odds point to a rate cut in September, policymakers continue to press a patient and higher-for-longer stance when it comes to monetary policy over the intermediate term. In our view, one or two rate cuts from the Fed this year are unlikely to impact the economy much. Nevertheless, rate cuts could influence how investors interpret the growth environment for the rest of the year and whether stock prices continue to react positively to a soft-landing scenario that keeps economic momentum positive and corporate profits growing. Yet, weakening consumer trends, narrow market breadth, low stock volatility (a sign of investor complacency), and elevated expectations heading into the second quarter earnings season are reasons to refrain from becoming too euphoric about the current stock environment.

At the same time, worrying excessively about the what-ifs or what can go wrong in the stock market between now and the end of the year is not a productive investment strategy, in our view. Current economic and inflation trends suggest the Fed could have room to cut rates later this year, and importantly, S&P 500 earnings per share (EPS) growth is expected to top +9.0% year-over-year in the second quarter. Notably, the percentage of companies with positive EPS revisions continues to improve, hitting the highest level since 2022, according to FactSet. In the second quarter, S&P 500 EPS estimates fell just 0.5%, far smaller than the ten-year average quarterly decline of 3.3%.

Bottom line: With eight of eleven S&P 500 sectors expected to post positive earnings growth in the second quarter and stock valuations across several sectors of the Index relatively more attractive than Big Tech, positive results and outlooks from corporate America over the coming weeks could reframe how investors approach the market in the second half. That said, what companies have to say in their earnings updates about the outlooks for consumer and business spending, regardless of seasonal factors, will likely be critical to shaping market trends as we move deeper into the summer months.

The Week Ahead:

Fed Chair Jerome Powell will head to Capitol Hill this week to deliver his two-day semiannual Monetary Policy Report to Congress. We expect the Chair to keep tight-lipped about future rate policy and retread known positions on the economy and inflation. Key updates on inflation and the start of the second quarter earnings season line the week.     

  • Thursday’s June core Consumer Price Index (CPI) is expected to hold steady versus May levels. Friday’s June Producer Price Index is also expected to see little change on a headline and core basis versus the prior reading.
  • A preliminary look at July Michigan Sentiment on Friday should also show little change versus June.

Delta Air Lines and PepsiCo kick off the Q2 earnings season on Thursday, with JPMorgan Chase, Wells Fargo, and Citigroup lined up for release on Friday. Over the next two weeks, 48 S&P 500 companies will report Q2 profit results.

These figures are shown for illustrative purposes only and are not guaranteed. They do not reflect taxes or investment/product fees or expenses, which would reduce the figures shown here. An index is a statistical composite that is not managed. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.

Sources: FactSet and Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer term securities.
Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.
The products of technology companies may be subject to severe competition and rapid obsolescence, and their stocks may be subject to greater price fluctuations.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
Definitions of individual indices and sectors mentioned in this article are available on our website at in the Additional Ameriprise research disclosures section.
The Dow Jones Industrial Average (DJIA) is an index containing stocks of 30 Large-Cap corporations in the United States. The index is owned and maintained by Dow Jones & Company.
The Standard & Poor’s 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees. 
The NASDAQ composite index measures all NASDAQ domestic and international based common type stocks listed on the Nasdaq Stock Market.
The US Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. This is computed by using rates supplied by approximately 500 banks.
West Texas Intermediate (WTI) is a grade of crude oil commonly used as a benchmark for oil prices. WTI is a light grade with low density and sulfur content.
The Institute for Supply Management (ISM) manufacturing index is a national manufacturing index based on a survey of purchasing executives at roughly 300 industrial companies. It is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
The ISM Services PMI (formerly the Non-Manufacturing NMI) is compiled and issued by the Institute of Supply Management (ISM) based on survey data. The ISM services report contains the economic activity of more than 15 industries, measuring employment, prices, and inventory levels; above 50 indicating growth, while below 50 indicating contraction.
The Consumer Price Index (CPI) is an inflation indicator that measures the change in the total cost of a fixed basket of products and services, including housing, electricity, food, and transportation. The CPI is published monthly by the Commerce Department and is also commonly referred to as the cost-of-living index.
The American Association of Individual Investors Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market short term (i.e., where the market is heading in the next six months). Individuals are polled on a weekly basis.
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