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Cooling Economic Data Can’t Stop a Hot Stock Market
Equity markets rose during the holiday week even with signs of cooling in the economy. Both global equities (represented by the MSCI All Country World Index) and domestic stocks (represented by the S&P 500 Index) were up 1.98%.
US Labor Market
The US labor market showed signs of moderation in June but at a slower pace than consensus expectations. The Labor Department’s jobs report released Friday showed the economy added 206,000 jobs in June, falling by 12,000 from the previous month but higher than estimates of 190,000. The US unemployment rate ticked up from 4.0% to 4.1% marking the highest level since November 2021 and above the 4% unemployment rate forecasted by the Fed for 2024. Wage growth also slowed to a rate of 3.9% year-over-year with the silver lining of potential inflation moderation.
Institute of Supply Management (ISM)
The Institute of Supply Management (ISM) released both their services and manufacturing index readings last week which are seen as leading indicators of economic growth. The manufacturing index fell slightly and remained in contractionary territory for the 19th time out of the last 20 months. The Services PMI had a sharper drop for the month, falling to 48.8 in June from 53.8 the month prior. June’s reading marks the lowest level dating back to May 2020. The prices paid indexes for both the manufacturing and services sectors followed suit, dropping from the previous month, potentially pointing to a continued moderating trend for inflation.
S&P 500
According to S&P Dow Jones Indices, the S&P 500 companies increased their dividends paid by more than 1% from this year’s first quarter to the second quarter. These companies paid dividends in the amount of $153.4 billion in the second quarter, up from $151.6 billion in the first quarter.
Looking Forward
This week the Consumer Price Index is scheduled to be released. The CPI in May rose at an annual rate of 3.3%, slightly better than consensus expectations of 3.4%. The velocity of moderating headline inflation has slowed since mid-2023, but investors are still focused on a downward trend toward the Fed’s long-term 2% inflation target.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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