With 2Q/24 earnings season in the rear-view mirror, financial markets have turned their attention to the economy – more specifically, the job market. Weak reports could provide support for the Federal Reserve cutting interest rates to stave off an economic slowdown. On the other hand, strong reports could argue for the Fed holding rates steady to continue its fight against inflation. The former would seemingly provide more support for higher stock prices, as lower rates are typically viewed as economically stimulative. Last week brought major reports on job openings, unemployment, and payrolls – here’s how they affected the markets.
The Job Openings and Labor Turnover Survey (JOLTS) hit on Tuesday. The report showed job openings at their lowest level (8.06 million) in more than three years, and down meaningfully from March 2024 (8.36 million).[1] Stocks hesitantly moved higher on the news, with traders wary of getting in front of weightier reports due later in the week.
Wednesday’s ADP employment report proved a bigger market mover. The report showed private companies added just 152,000 jobs in May, well off the estimated 175,000, and further off the 188,000 added in April.[2] The soft report pushed stock prices to record levels and increased the odds of a September rate cut to 70%. Not to be overlooked, AI darling Nvidia also hit a record high, leapfrogging Apple in the process to become the second most valuable public company behind only Microsoft.
A surprisingly strong payroll report on Friday threatened to end the week on a sour note. And it did for the bond market, as prices moved sharply lower. Indeed, the Bloomberg Aggregate Bond Index slumped 0.8% for the day, as the odds of a September rate cut dropped to just 51%.[3] Stocks, however, moved down just marginally, ending the week near Wednesday’s record close.
Next up will be inflation. This week will bring a new reading on the all-important consumer price index (CPI). Consumer prices bumped up 0.3% higher in April, and a similar reading is expected for May.[4] The release comes the same day the Federal Reserve meets. But no action is expected from the Fed, as its 2% inflation target has remained elusive.
[1] https://www.reuters.com/markets/us/us-job-openings-fall-more-than-expected-april-2024-06-04/
[2] https://www.cnbc.com/2024/06/04/stock-market-today-live-updates.html
[3] https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html
[4] https://www.forbes.com/sites/simonmoore/2024/05/29/what-the-fed-is-looking-for-in-mays-cpi-report/
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