The economic calendar was relatively light this week, but the data that was released was not without significance. Employment data was the most prominent of the figures released as the unemployment rate rose to 4.1% from last month’s reading of 4%. The June figure represents the third consecutive increase and the first time to reach a level this high since November 2021.
Nonfarm payrolls increased by 206,000 for the month, which was higher than the consensus expectation of 189,500. Beyond the June increase, however, were downward revisions to the two prior monthly releases as the reports for April and May were lowered by a total of 111,000. In aggregate the employment data indicates moderating strength in the labor market and a move in the direction that could potentially lead the Federal Reserve to begin cutting interest rates later this year. Fed Chair Powell confirmed this sentiment in his testimony to the House of Representatives this week by stating that the labor market is becoming more balanced and that the Fed is very cognizant of the prospective risk to the overall economy if it cools too quickly.
Also surpassing the consensus expectation for the month of June was the National Federation of Independent Business (NFIB) Small Business Optimism Index. With its reading of 91.5, it registered the highest level since December 2023. Despite the improvement over the prior month, the index is still below its historical average of 98 and it has now resided at this below average level for 30 months. Business owners reported that inflation continues to be their dominant concern.
Equity markets around the globe continued their march higher this week as the Russell 3000 Index of domestic companies rose 2.1%, while the MSCI EAFE Index of developed foreign markets advanced 0.7%. For the year-to-date period, United States equities have returned 16.8% which is led by companies from the Information Technology and Communication Services sectors.
Fixed income also enjoyed positive returns with broad bond market indices advancing by 0.5%. The positive return was aided by a small decline in interest rates as illustrated by the 10-year United States Treasury which saw its yield move from 4.36% to 4.28% over the course of the week.
Later this week, investors’ focus will turn to the release of inflation data and the start of second quarter earnings season. Financial services companies are the most prominent sector to start the reporting season. For the Standard & Poor’s Index, earnings are expected to increase by 10.1%. Communication Services, Health Care and Information Technology are expected to provide the strongest growth with earnings increases ranging from 16.9% to 21.7%.
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Sources: BTC Capital Management, Bloomberg, FactSet Research, FTSE Russell
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