Weekly Market Vibes

Stocks move lower in quiet trading

Stocks closed lower in a generally quiet week due to the holiday-shortened week and investors awaiting the release of second-quarter earnings reports. Growth stocks held up modestly better than value shares. Tesla, which has a heavy weighting in the Nasdaq Composite and growth indices, provided a boost after reporting better-than-expected sales, as did its smaller electric vehicle rival, Rivian. Conversely, disappointing trial results for AstraZeneca’s new lung cancer drug weighed on the health care sector. Markets closed early Monday and were shuttered Tuesday in observance of the Independence Day holiday.

Minutes reveal hawkish Fed outlook

The main factor weighing on sentiment during the week appeared to be Wednesday’s release of the minutes from the Federal Reserve’s last policy meeting. The minutes revealed that, while the decision not to raise rates in June was unanimous, some members would have preferred another increase. Expectations that rates would remain “higher for longer” were deepened Thursday, after Dallas Fed President Lorie Logan, one of those who argued for a rate hike in June, told a gathering of the Central Bank Research Association that she anticipated two more rate increases in the remainder of the year. In response, markets began pricing in a roughly 44% chance of two or even three quarter-point hikes by December, according to the CME FedWatch Tool.

That probability fell back to end Friday at around 36%, however, seemingly in response to data indicating a slowdown in the job market. The Labor Department reported that employers added 209,000 nonfarm jobs in June, modestly below expectations and the lowest number since December 2020. The previous two months’ gains were also revised lower by a total of 110,000 jobs. The unemployment rate edged down from 3.7% in May to 3.6% in June. The report also revealed that the number of people employed part time for economic reasons jumped by roughly 11% in June, “partially reflecting an increase in the number of persons whose hours were cut due to slack work or business conditions.”

Manufacturing workers face tougher job market

The week also brought evidence that factory and services workers were facing very different job markets, however. The Institute for Supply Management’s (ISM’s) Manufacturing Purchasing Managers’ Index (PMI), released Monday, seemed to confirm a renewed slowdown in job growth, indicating a contraction in hiring trends in the sector for the first time since March. The Institute’s gauge of services employment painted the opposite picture, however, jumping to its highest level (53.1, with numbers above 50 indicating expansion) since February. The ISM’s overall Services PMI also hit its highest level (53.9) since February, well above estimates.

The yield on the benchmark 10-year U.S. Treasury note fluctuated following the release of Friday’s payroll report but closed higher for the week and firmly above 4% for the first time in eight months. (Bond prices and yields move in opposite directions.) Munis held up better, helped by the reinvestment of July coupon payments and no new supply reaching the market. Credit-sensitive corporate bond markets were also quiet over the holiday-shortened week.

‍