July 8, 2024

Another day, another dollar as the July 4th holiday weekend came to a close. And the market action was similar on both days, as things started moderately lower and finished with an upside bang, right on the market highs and this was based on the fact that investors are hoping that recent economic reports have shown a slowing of the economy with less inflationary pressures.

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The market seems to be following the historical record which shows that the first half of July is the best two-week performance for equities for the entire year, going all the way back to 1928.

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So the S&P set three consecutive records to end the first half of this bullish time period with a 30 point gain to 5567, higher than it has ever been. This followed a 28 point gain on Wednesday after a weaker than expected June ISM Services report. And leading the upside charge were the same large-cap technology stocks and we do not have to repeat their names here, with AAPL, MSFT, META at new highs and TSLA finally awakening from its long slumber to add some spice to the upside. These gains meant 34 new record highs for this index in 2024.

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The Nasdaq also closed higher than it has ever been as well with a 164 point advance following a 159 point gain and it ended at 18,353. The Dow gained 67 points after a 23 point decline on Wednesday and is definitely lagging the other two, as it always seems to have some weaker members in it.

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The Russell 2000 Index of small stocks basically goes nowhere due to some small bank weakness and this could change this week with earnings reports on Friday some of the largest financial institutions (see list below).

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The VIX actually had the nerve to rise a bit to 12.24 which is probably because it does not want to go lower as it is near historical lows and this advance should going too much lower for the time being.

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The main upside motivator on Friday was the J t which showed that interest rates may soon get lower. The action was more decisive in the bond market, where Treasury yields sank following the U.S. jobs report. Employers hired more workers last month than economists expected at 206,000 and the number was revised lower by 110,000, but the number was still a slowdown from May’s hiring. It was the 42nd consecutive month of job growth. The unemployment rate unexpectedly ticked higher at 4.1%, growth for workers’ wages slowed to 0.3% which meant that for the year it was 3.9%.

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Altogether, the data reinforced belief that the U.S. economy’s growth is slowing under the weight of high interest rates. That is precisely what investors want to see, because a slowdown should keep a lid on inflation and could push the Federal Reserve to start to its main interest rate its main interest rate from the highest level in two decades.

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The question is whether the economy can remain in this Goldilocks state of not too hot and not too cold, while the Federal Reserve times its next moves precisely. The hope is that the Fed will lower interest rates early and significantly enough to keep the economic slowdown from sliding into a recession, but not so much that it allows inflation to regain strength and take off again.

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The clearest takeaway from the jobs report for financial markets was that it keeps the Fed on track to cut its main interest rate later this year, likely in September and perhaps again in December. The two-year Treasury yield, which closely tracks expectations for Fed action, fell to 4.60% from 4.71% late Wednesday.

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The yield on the 10-year Treasury, which is the centerpiece of the bond market, fell to 4.27% from 4.36% late Wednesday and from 4.70% in April. That is a notable move for the bond market and offers support for stock prices.

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Friday’s jobs report follows a mass of data showing a slowdown across the U.S. economy. Reports earlier last week said business activity in both the U.S. services and manufacturing sectors contracted, turning in weaker readings than economists expected. And U.S. shoppers at the lower end of the income spectrum have been showing how difficult it is to keep up with still-rising prices, as balances increase on credit cards.

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On the losing end were companies tied closely to cryptocurrency activity, as bitcoin briefly tumbled below $54,000 from nearly $63,000 early this week before recovering a bit. The cryptocurrency’s value fell roughly back to where it was in February.

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In stock markets abroad, London’s FTSE 100 fell 0.5% after U.K. voters ushered in a new regime by throwing out Conservatives in this week’s national election.

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The United Kingdom experienced a run of turbulent years during Conservative rule that left many voters pessimistic about their country’s future. The U.K.’s exit from the European Union followed by the COVID-19 pandemic and Russia’s invasion of Ukraine battered the economy. Rising poverty and cuts to state services have led to gripes about “Broken Britain.”

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In Asia, Japan’s Nikkei 225 topped the 41,000 level early on Friday to rise above its record closing level set on Thursday, but it ended the day marginally lower.

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Second-quarter earnings season kicks off this week with the following: - Wednesday – WD40; Thursday – CAG, DAL, PEP; Friday – C, FAST, JPM, WFC, BNY.

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Economic reports will see: Thursday – June C.P.I., weekly jobless claims; Friday – June P.P.I., preliminary U. of Michigan Consumer Sentiment Survey.