The S&P 500 (+0.5%) and Nasdaq Composite (+0.9%) reached all-time highs today, driven by strong gains in mega-cap stocks. However, a negative bias was evident beneath the surface following the June Employment Situation Report.
The report aligned with market expectations for a rate cut but raised concerns about lower earnings growth if a weakening labor market leads to reduced consumer spending.
Key employment data included:
- Private sector payrolls increased by 136,000
- Average hourly earnings growth slowed to 3.9% year-over-year from 4.1%
- Unemployment rate rose to 4.1% from 4.0%
- Long-term unemployment (27 weeks or more) rose to 22.2% from 20.7% in May
Treasury yields fell in response to the jobs report, reflecting heightened rate cut expectations. The 10-year note yield decreased by eight basis points to 4.27%, and the 2-year note yield dropped 12 basis points to 4.60%.
Rate cut expectations increased, with the probability of a 25-basis point cut at the September FOMC meeting rising to 76.3% from 64.1% a week ago, according to the CME FedWatch Tool.
Many stocks saw declines, particularly those with high exposure to discretionary spending. Homebuilders, entertainment stocks, and cruise lines were among the weakest in the S&P 500 consumer discretionary sector (+0.5%).
Despite this, the sector closed higher due to gains in Amazon.com (AMZN, +1.2%) and Tesla (TSLA, +2.1%). The underperformance of some discretionary stocks highlighted concerns about lower earnings growth prospects.
Year-to-date performance:
- Nasdaq Composite: +22.3%
- S&P 500: +16.7%
- Dow Jones Industrial Average: +4.5%
- S&P Midcap 400: +4.1%
- Russell 2000: -0.02%
Review of today's economic data:
- June Nonfarm Payrolls: 206K (consensus 185K); Prior revised to 218K from 272K
- June Nonfarm Private Payrolls: 136K (consensus 160K); Prior revised to 193K from 229K
- June Avg. Hourly Earnings: 0.3% (consensus 0.3%); Prior 0.4%
- June Unemployment Rate: 4.1% (consensus 4.0%); Prior 4.0%
- June Average Workweek: 34.3 (consensus 34.3); Prior 34.3
The key takeaway is that softening labor market conditions may provide the Fed with justification to cut rates in September.
Looking ahead, Monday's economic data includes the May Consumer Credit report (consensus $9.5 billion; prior $6.4 billion) at 15:00 ET.
Today's News
Nvidia (NVDA, Financial) saw its stock downgraded to Neutral from Buy by New Street Research. The investment firm indicated that the stock is fully valued at its current price, with upside potential only in a bull case scenario that extends beyond 2025. Analyst Pierre Ferragu set a 12-month price target of $135, emphasizing that while the company's franchise quality remains intact, he would only recommend buying on prolonged weakness.
Billionaire investor Mario Gabelli (Trades, Portfolio) stated that he may not sell his shares in Paramount (PARA, Financial) even if it merges with Skydance. Gabelli, a key voting shareholder in Paramount's holding company, mentioned that he needs to see the structure of the transaction before making any decisions. The new terms appear favorable for minority shareholders, and National Amusements, which owns 77% of Paramount's Class A stock, is not mandating the merger's approval by a majority of non-Redstone shareholders.
SunPower (SPWR, Financial) dropped 18.2% after Ernst & Young resigned as its auditor amidst allegations of misconduct by senior executives. The company received a subpoena from the SEC related to accounting practices and stated that it has authorized an internal review conducted by an independent law firm and forensic accountants. Ernst & Young cited unwillingness to be associated with the financial statements prepared by management as their reason for resignation.
Advanced Micro Devices (AMD, Financial) surged nearly 5% as semiconductor stocks rallied. AMD has added more than 10% over the past five trading sessions, driven by expanding data center revenue. Intel (INTC, Financial) also saw a 2% increase despite a year-to-date decline of nearly 40%. Analysts believe Intel's stock is underrated and that the recent sell-off was due to softer-than-expected guidance for the remainder of 2024.
Several Chinese EV stocks, including XPeng (XPEV, Financial), Li Auto (LI, Financial), and NIO (NIO, Financial), traded defensively after the European Union imposed steep tariffs on all battery electric vehicles imported from China. The EU found that Chinese manufacturers benefited from uncompetitive subsidies, which significantly increased their market share in Europe.
A new study linked the use of GLP-1 drugs and metformin to a lower risk of developing certain obesity-related cancers in patients with Type 2 diabetes. The study showed significant risk reductions for various cancers, including gallbladder, pancreatic, and colorectal cancer, among others. The research analyzed electronic healthcare records of approximately 1.7 million patients prescribed GLP-1 drugs, metformin, or insulin between 2005 and 2018.
Main Street Capital (MAIN) closed its 7th straight session of gains near a 52-week high. The business development company has been favored by income investors due to its high dividends. After a brief pullback in May 2024, MAIN increased its monthly dividend by 2.1% and declared a $0.30 per share supplemental dividend.
Pfizer (PFE, Financial) announced the election of former State Street Global Advisers President and CEO Cyrus Taraporevala to its board. Taraporevala will also join the audit and compensation committees. Meanwhile, NIO (NIO, Financial) appointed Stanley Yu Qu as its new CFO after Steven Wei Feng resigned for personal reasons.
JPMorgan Chase (JPM, Financial) indicated that customers should be prepared to pay for their bank accounts in response to new proposed rules limiting overdraft and late fees. The bank serves over 82 million consumers and six million small businesses in the U.S.
MediWound (MDWD, Financial) soared 35% following a report that Solventum made a $34 per share offer for the company. MediWound's management is currently evaluating the offer, which represents a 118% premium to its closing price on Tuesday.
Spirit Airlines (SAVE) and Frontier Group Holdings (ULCC) both saw their stocks downgraded to Underperform by Raymond James. The downgrade was attributed to weaker fare trends and insufficient capacity adjustments post-summer, posing medium-term risks for the discount carriers.
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