What’s worth knowing this week

A key week of jobs data will welcome investors into the holiday-shortened trading week starting in July, the third quarter and the second half of 2024.

The S&P 500 Index (GSPC) is entering Q3 up 14.5% year to date, while the Nasdaq Composite (IXIC) is up more than 18%. The Dow Jones Industrial Average (DJI) is up a more modest 3.8% through the first six months of the year.

As stock prices remain near record highs and recent inflation trends appear more positive, all eyes have turned to the labor market for signs of weakness and the Federal Reserve maintains a tight stance on interest rates.

The June employment report will provide a solid look at the labor market on Friday, and updates on private-sector payrolls and job openings will also be in focus throughout the week. Updates on activity in manufacturing and services will also be on the schedule.

Constellation Brands (STZ) is expected to be the only major corporate earnings headline in a quiet week before the big banks officially kick off their second-quarter earnings season next week.

US markets will close early on July 3 at 1:00 PM ET and will remain closed on July 4 in observance of Independence Day.

A look at the job market

The June employment report is due out Friday morning and is expected to show continued stabilization in the labor market.

The report is expected to show that the U.S. economy added 188,000 non-farm jobs last month, with unemployment remaining steady at 4%, according to Bloomberg data. In May, the U.S. economy added 272,000 jobs and the unemployment rate rose slightly to 4%.

Bank of America U.S. economist Michael Gapen argued that a report consistent with this assumption would still show the labor market is “cooling but not cool.”

On Friday, the latest reading of the Fed’s preferred inflation gauge showed inflation fell in May, with prices rising at the slowest pace since March 2021.

The print was seen as a step in the right direction in the Federal Reserve’s fight against inflation.

Positive inflation trends combined with signs of slowing economic activity are leading economists to say the Federal Reserve should be leaning toward lowering interest rates sooner rather than later.

“The emerging signs of weakness in the labor market show that (Fed) officials also need to pay attention to risks to full employment within their mandate,” Michael Pearce, deputy chief U.S. economist at Oxford Economics, wrote in a note to clients.

Halftime report

As in 2023, much of the stock market gains in 2024 were driven by a few big tech stocks.

The story continues

At midyear, more than two-thirds of the S&P 500’s annual gains came from Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META) ), and Broadcom (AVGO). Nvidia alone provided almost a third of those gains.

Despite a few short-term gains throughout the year, only two sectors have outperformed the S&P 500 this year: communications services and information technology. Both stocks rose more than 18% compared to the S&P 500 Index’s gain of about 15%.

That keeps the debate alive about whether the second half of the year will see an extension of the stock market’s rally, a hot topic on Wall Street.

Morgan Stanley’s chief investment officer, Mike Wilson, recently argued in a research note that given weakening economic data and high interest rates, a true broadening in which non-tech sectors pick up the slack is unlikely to occur.

“Narrow breadth may persist, but it’s not necessarily a headwind for earnings growth,” Wilson said. “We think broadening is likely to be limited to high-quality/large-cap pockets for now.”

More megacap uniqueness

Most strategists believe that megacap tech companies are leading the rally for good reason, given that their earnings continue to outpace the market. This is also expected to be the case for second-quarter earnings.

According to Jonathan Golub, U.S. equities strategist at UBS Investment Bank, earnings for Nvidia, Apple, Alphabet, Microsoft, Amazon and Meta are expected to grow a combined 31.7% in the second quarter.

The S&P 500 itself is expected to post earnings growth of a more moderate 7.8%.

This means that the lion’s share of earnings growth is once again expected to come from Big Tech. A similar trend can be observed in the case of the second quarter earnings revision.

Since March 31, Golub’s research shows, earnings estimates for the S&P 500 have fallen just 0.1%, much less than the typical 3.3% decline seen on average. This is largely due to the 3.9% upward revision for the aforementioned six largest tech companies.

In the second half of the year, the debate over whether the ongoing profits of these large technology companies will decline will remain in the spotlight.

Weekly calendar

Monday

Economic data: S&P Global US manufacturing, June final (expected 51.7, previously 51.7); Construction spending, month-on-month, May (expected 0.3%, previously -0.1%); ISM Manufacturing, June (expected 49.2, previously 48.7)

Profits: No significant earnings.

Tuesday

Economic data: Job openings, May (expected 7.86 million, previously 8.06 million)

Profits: No significant earnings.

Wednesday

Economic data: MBA mortgage applications, week ending June 28 (0.8%); private sector salaries ADP, June (expected +158,000, +152,000 previously); S&P global US Services PMI, final June result (expected 52.3, previously 55.1), S&P Global US composite PMI, final June result (54.6 previously); ISM Services Index, June (expected 52.5, previously 53.8); ISM service prices paid, June (58.1); factory orders, May (expected 0.3%, previously 0.7%); orders for durable goods, final result in May (0.1%)

Profits: Constellation Brands (STZ)

Thursday

Markets are closed for the Fourth of July holiday.

Friday

Economic calendar: Nonfarm payrolls, June (expected +188,000, previously +272,000); Unemployment rate, June (expected 4%, previously 4%); Average hourly earnings, month-on-month, June (expected +0.3%, previously +0.4%); Average hourly earnings, year-over-year, June (expected +3.9%, previously +4.1%); Average hours worked per week, June (expected 34.3, previously 34.3); Labor force participation rate, June (expected 62.6%, previously 62.5%)

Profits: No significant earnings.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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