Major U.S. stock indexes took a breather last week as labor markets showed signs of softening after being strong and resilient for an extended period of time.
Tallying last week, the S&P 500 fell by 1.16%, the Nasdaq 100 declined by 0.94%, and the Dow Jones Industrial Average decreased by 1.96%.
Jobs Data Misses Estimates
After a logic-defying run in monthly jobs growth, payroll additions for June finally showed softening. Missing analyst estimates of 240,000, June payrolls showed 209,000 jobs added–still a decent number. The latest data for June showed leisure and hospitality cooling, adding only 21,000 jobs for the month. The sector has been a major job growth driver over the last three years.
Unemployment slowed, clocking in at a 3.6% rate, down 0.1% from the prior month, but let’s understand that the unemployment rate data is not all-encompassing.
When factoring in “discouraged workers” and only part-time workers, another metric shows unemployment running at 6.9%, which makes more sense.
Jobs may have fallen in June, but the overall labor market remains strong.
“This is a strong labor market where demand for higher paying jobs is clearly the trend,” said Joseph Brusuelas, chief economist at RSM. “So, I think it’s no longer appropriate to talk about an imminent recession, given those strong gains in jobs and wages.”
Government Bond Yields Rise
The 10-year yield finished near 4.049% last week, closing the week higher than the previous week’s close near 3.82%.
2-year yields rose as well last week, but interestingly, at a slower pace than 10-year yields.
Perhaps this is an early indication of the inverted yield curve (a key recession indicator) softening. Time will tell!
Bond Market Expectations
Are we there yet? Similar to kids in the back seat of a car, many market watchers pose this question to the Federal Reserve as concerns about higher rates persist.
As of last week’s market close, expectations showed a 93% chance of a 25-basis-point hike at the July Federal Reserve meeting.
These renewed probabilities of continued Fed rate hikes contributed to last week’s softer equity market. Fed meeting minutes released last week reinforced rate hike continuation expectations.
Oil Rallies
Notice lower gas prices lately? They may be on the way up again. You might want to fill up now!
Crude oil futures for July delivery caught a bid last week amid the summer driving season, even though that season historically begins around Memorial Day. Supply concerns were also in focus during last week’s trading.
The average price for regular unleaded gasoline is $3.538 as of July 9th, according to data from AAA.
The Week Ahead
This week, attention turns to Consumer Price Index (CPI) inflation data on Wednesday. This CPI report will be the last consumer inflation metric the Fed will have going into its July meeting. So, markets are eager to see if the inflation moderation continued into June and how it could affect Fed rate hike probabilities later this month.
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