Job Growth Cools, Inflation Eases: Will the Fed Take a Break on Rates?

Get ready for a data-packed week in the stock market! July kicks off the third quarter and the second half of 2024, and it's a holiday-shortened week with a lot to unpack.

Stocks are Soaring, But Can They Keep Going?

The S&P 500 is up a whopping 14.5% so far this year, with the Nasdaq doing even better at over 18%. The Dow Jones is lagging behind at a still-respectable 3.8% gain. With stocks near record highs and recent inflation data looking a little better, everyone's watching the job market for any signs of weakness. This is especially important since the Federal Reserve is still keeping interest rates high to fight inflation.

All Eyes on the Jobs Report

The big news this week will be the June jobs report coming out on Friday. Economists predict it will show the job market is cooling down a bit. They expect around 188,000 new jobs were added last month, with the unemployment rate staying steady at 4%. This would be a slowdown from May's report of 272,000 new jobs.

Inflation Shows Signs of Slowing

There's some good news on the inflation front. The latest data showed inflation eased in May, with prices increasing at their slowest pace in over a year. This is a positive sign for the Fed's fight against inflation.

With inflation seemingly under control and economic activity slowing down, some economists argue the Fed should consider lowering interest rates sooner rather than later. They worry that the Fed might accidentally hurt the job market by keeping rates too high.

Tech Stocks Rule the Market (Again)

Just like last year, a handful of big tech stocks are driving most of the stock market rally in 2024. At the halfway point of the year, over two-thirds of the S&P 500's gains are thanks to companies like Nvidia, Apple, Alphabet, Microsoft, Amazon, Meta, and Broadcom. Nvidia alone is responsible for nearly a third of those gains!

This dominance by tech stocks has some analysts wondering if the rest of the market will ever catch up in the second half of the year. Others argue that even with weakening economic data, tech stocks might still be the best bet since their earnings continue to outperform the market.

Big Tech Earnings Expected to Shine

Analysts predict that the big six tech companies (Nvidia, Apple, Alphabet, Microsoft, Amazon, and Meta) will grow their earnings by a combined 31.7% in the second quarter. That's compared to a more modest 7.8% growth expected for the S&P 500 as a whole. This means Big Tech is once again expected to be the earnings champion.

The big question for the second half of the year is whether these tech giants can keep up their earnings streak. Investors will be watching closely to see if their dominance continues.