#US Stock Market Review# On Friday, July 5th, the S&P 500 Index and the Nasdaq Index both closed at record highs due to the "non-farm" employment report raising hopes of a Fed rate cut.
The S&P 500 index rose 0.54% to 5567.19, hitting a new high again; the Dow Jones Industrial Average rose 0.17 points to close at 39375.87 points; and the Nasdaq Composite Index rose 0.9% to close at 18352.76 points, setting a new record.
(Source: FX168)
(Source: FX168)
The "non-farm" data.
The highly anticipated US non-farm data for June, released on Friday, was bullish for rate cuts.
In June, non-farm employment increased by 0.206 million people, but the unemployment rate rose slightly to 4.1%. Economists had expected the unemployment rate to remain at the 4% level.
The jobs report on Friday was released after a large amount of data showed the U.S. economy slowing down. A report earlier this week showed that business activity in both the US service and manufacturing industries shrank last month, lower than economists' expectations.
These data underscore Wall Street's belief that US economic growth is slowing under pressure from high interest rates. This is exactly what investors want to see, as a slowdown in the economy will curb inflation and may prompt the Fed to start lowering its main interest rate, which is at its highest level in 20 years.
The most obvious lesson of the jobs report for the financial markets is that it makes the Fed likely to cut its main interest rate later this year, possibly in September or December. The FedWatch tool of the CME Group shows that investors' expectations of a rate cut in September have increased, with the probability of a quarter-point rate cut rising to about 77% from 64% a week ago.
Market view
The question is whether the economy can maintain this "not too hot, not too cold" status quo while the Fed accurately times its next move. People hope the Fed can cut interest rates substantially and early enough to prevent an economic slowdown from entering recession, but the rate cut cannot be too large, otherwise inflation might rise again.
Brian Jacobsen, chief economist at Annex Wealth Management, said: "The concern about an economic downturn is important for long-term investors. We don't think there is likely to be an economic recession this year or next, but that doesn't mean the market won't be worried."
Seema Shah, chief global strategist at Principal Asset Management, said: "On the one hand, the downward revision of the past few months and the rise in the unemployment rate have increased the chances of a Fed rate cut in September - the bond market is certainly welcoming this. But the same numbers cannot help but raise concerns about the direction of the US economy. A large amount of economic data shows that the economy is slowing down - today's report further confirms this view."
Bond market
After the US employment report was released, US Treasury yields fell.
The yield on two-year US Treasuries, which is closely tied to Fed action expectations, fell from 4.71% on Wednesday to 4.60%.
The yield on 10-year US Treasuries, which is the core of the bond market, fell from 4.36% on Wednesday evening to 4.27%.
Focus stocks
Nvidia fell 1.91%, with New Street Research downgrading the company from Buy to Hold, citing limited upside after a strong rally this year. This is the second time Nvidia has been downgraded this year.
Meta Platforms rose 5.87%, hitting a 52-week high. US big tech companies are still investing heavily in artificial intelligence, and Meta has introduced a new artificial intelligence method by releasing a pre-training model that uses a novel multi-tag prediction method. This is very different from the traditional method of training large language models (LLMs) to predict the next word in a sequence.
Tesla rose more than 2%, with a gain of about 26% so far this week. According to media reports, Tesla cars are listed for the first time on the Chinese government procurement list. Tesla is the only foreign-funded electric vehicle brand in the purchasing catalog of the Jiangsu Provincial Government in China.
Apple's stock price rose by about 2.16% to a new high. Apple's stock price has risen nearly 7% this week. On the news front, Taiwan Semiconductor will manufacture the Apple M5 series of chips, using its most advanced SoIC-X packaging technology for AI servers. Apple expects to start mass production of the M5 chip in the second half of next year, when TSMC will significantly increase its SoIC capacity. Apple is currently using the M2 Ultra chip in its AI server cluster, with usage expected to reach about 0.2 million units this year.
Amazon rose 1.22% after announcing a $2.65 billion deal to acquire the Neiman Marcus Group with Saks Fifth Avenue. Amazon will hold a minority stake in the transaction.
Macy's rose 9.54%. According to The Wall Street Journal, investment groups Arkhouse Management and Brigade Capital Management have raised their acquisition quote for the retailer, causing the stock price to rise by more than 12%. The group is currently offering Macy's about $24.80 per share, up from $24 before.
Golden Minerals Company rose 2.45%. The company benefited from the rise of gold prices, which typically strengthen in the face of falling interest rates. Conversely, when interest rates rise and bond yields go up, investors may shy away from gold since gold holders don't earn any returns.