Stock Market ⚡️ 07/05/2024

Good afternoon! The stock market is back in full swing today, and there's plenty to catch up on after the Fourth of July holiday. Despite the holiday-shortened week, there's no shortage of excitement in the markets

MARKETS

• Stocks surged across the board after the latest jobs report indicated a slowdown in hiring and a rise in unemployment to its highest level since November 2021. The S&P 500 and Nasdaq both reached new record highs, while the Dow Jones also climbed on renewed hopes for a rate cut.

• Bond yields fell in response to the mixed jobs data, which suggested that the Federal Reserve is likely to cut interest rates in September.

• Gold prices hit a one-month high, and despite oil closing the day with losses, it still marked its fourth consecutive week of gains.

• Bitcoin experienced a sharp drop as a large amount of the cryptocurrency entered the market, but it managed to recover most of its losses by the end of the day.

MARKETS
Labor Market Stays Steady Despite Uncertainty

The June jobs report from the Labor Department revealed that employers added 206,000 jobs, slightly above expectations but down from the revised 218,000 in May. Unemployment ticked up to 4.1%, surpassing 4% for the first time since November 2021​.

The labor market has shown resilience against long-standing predictions of a sharper hiring slowdown. However, conditions are starting to tighten, with unemployment rising even as job growth continues.

Here’s what else to know:

• Wage Growth Moderates: Average hourly earnings increased by 0.3% from the previous month and 3.9% year-over-year, the smallest annual increase since May 2021. These gains are still outpacing inflation, offering some relief to workers​

• Sector-Specific Job Gains: Significant hiring occurred in government (70,000 jobs), healthcare (49,000), social assistance (34,000), and construction (27,000). Other sectors, such as manufacturing and retail, saw minimal increases or even job losses​

• Revisions to Previous Months: April and May job growth figures were revised down significantly. April's numbers dropped to 108,000 from 165,000, and May's to 218,000 from 272,000​

• Market Reaction: The S&P 500 edged higher, and government bond yields fell, reflecting optimism that the Federal Reserve might cut interest rates in September​

• Federal Reserve Outlook: Fed Chair Jerome Powell noted that risks to inflation and employment goals have balanced out. If the labor market continues to cool and inflation remains in check, the Fed may shift focus to maximizing employment, potentially leading to rate cuts​

Overall, the latest data supports the possibility of a Federal Reserve rate cut in the coming months, balancing the need to control inflation with the goal of maintaining employment levels.

Insights from Economists

Claudia Sahm, Chief Economist for New Century Advisors, highlighted the importance of the rising unemployment rate as a potential indicator of future trends. “These numbers are good, but the upward drift in unemployment since 2023 is something to watch,” she noted​.

Nela Richardson, Chief Economist at ADP, described the current state as a "modulated cooldown," indicating a balanced slowdown in job growth that aligns with economic trends​ .

The labor market continues to show mixed signals, with solid job growth tempered by rising unemployment and moderated wage increases, setting the stage for potential monetary policy adjustments in the near future.

STOCK
Winners & Losers

What’s up 📈

• Meta Platforms soared 5.88% following a viral video from CEO Mark Zuckerberg, who showcased his adventurous side by wakeboarding in a tuxedo while holding an American flag and a beer. Shareholders seem to be thrilled with his charismatic leadership.

• Koss Corp. surged another 25.68%, continuing its unexpected rally as a meme stock favorite despite the lack of fundamental news driving the increase.

• Macy’s jumped 9.48% after bidders increased their acquisition offer for the struggling retailer from $6.6 billion to $6.9 billion, signaling strong interest and potential future growth.

• Smith & Nephew climbed 6.67% on the announcement that activist investor Cevian Capital has acquired a 5% stake in the medical device company, indicating possible strategic changes ahead.

• Instructure Holdings rose 5.25% amid reports of a bidding war brewing for the education software company, reflecting high market interest and potential for significant investment.

What’s down 📉

• Nvidia dropped 1.91% after a rare analyst downgrade, which cited concerns about the company's current valuation.

• Southwest Airlines declined 5.67% on the first full trading day following the adoption of a "poison pill" strategy to thwart a potential takeover by activist investor Elliott Management.

• Budget Airlines suffered significant losses after a Raymond James analyst downgraded the sector, citing an uncertain outlook for the third quarter. Frontier Group fell 6.79%, while Spirit Airlines plunged 8.70%.

• Crypto-related stocks experienced a rough day as Bitcoin briefly fell below $54,000, although they recovered alongside the cryptocurrency later in the session. Coinbase Global slipped 0.56%, Robinhood Markets decreased by 0.98%, and MicroStrategy declined 1.56%.

• These movements reflect a combination of valuation concerns, defensive corporate strategies, sector downgrades, and the volatile nature of cryptocurrency markets.

NEWS
Market Movements

• Labour Party Takes Power in the UK: The UK has elected the Labour Party, ushering in a new prime minister who will face the challenge of revitalizing a stagnant economy and addressing deteriorating public services.

• FTC Noncompete Agreement Ruling: One in five Americans is bound by noncompete agreements. A recent ruling may delay the FTC’s plan to ban these agreements for some.

• Market Trends: Large-cap stocks are outperforming small caps, growth stocks are leading over value stocks, and the US market is dominating international markets. The big question is: how long will these trends continue?

• Hurricane Beryl and Catastrophe Bonds: Hurricane Beryl struck Jamaica on Wednesday, but investors in catastrophe bonds won't have to contribute to the island's recovery efforts.

• Mt. Gox Bitcoin Returns: Mt. Gox is returning bitcoin to traders who believed their crypto assets were lost forever. This move is poised to have significant implications for the crypto market.

Calendar
On The Horizon

Big Banks to Kick Off Earnings Season: The new earnings season begins on Friday, with major banks like JPMorgan, Wells Fargo, and Citigroup set to release their quarterly reports. Investors will be closely monitoring how high interest rates and commercial real estate loans are impacting their financial performance.

Upcoming Economic Reports:

• University of Michigan’s Consumer Survey: This report, due next Friday, will reveal insights into consumer sentiment, which dropped 1% from May to June. Economists are hopeful for a slight recovery in the upcoming reading.

• CPI and PPI Reports: The most anticipated reports are the Consumer Price Index (CPI) on Thursday and the Producer Price Index (PPI) on Friday. The CPI, in particular, is a crucial indicator of inflation trends. In May, prices increased by 3.3% year over year, a marginal slowdown from April’s 3.4%. Investors are eager to see if this trend of easing inflation continues.

These reports and earnings will provide valuable insights into the economic landscape and the performance of key financial institutions