The summer rally in the U.S. stock market has gone on longer than expected. On Friday, as investors looked at the latest jobs report, the S&P 500 index hit yet another record high.
Andrew Slimmon, senior portfolio manager for U.S. stocks at Morgan Stanley Investment Management, said on the phone on Friday, “The economy is cooling, but not collapsing.” “The market doesn’t expect anything more than a slowdown.”
As of Friday, a report from the Bureau of Labour Statistics showed that the U.S. economy added 206,000 jobs in June and the unemployment rate went up slightly to 4.1%. The U.S. job market isn’t adding as many jobs as it used to, but the unemployment rate is still pretty low.
Slimmon says that the “tone” of the stock market supports the idea that the Federal Reserve may start lowering interest rates this year because inflation is moving closer to its target. This would be different from a “dire cut” made out of fear that the U.S. economy is “falling off a cliff.” Traders on the federal-funds futures market think that rates will start to go down in September.
Dow Jones Market Data says that the S&P 500 SPX closed at 5,567.19 points on Friday, which was its 34th record high of the year. So far in 2024, the index has gone up 16.7%. It started July with gains.
Slimmon said, “We’ve had a narrow market.” He was talking about the small group of Big Tech stocks that have helped the S&P 500 rise this year. He did say that many companies in other parts of the economy are “doing well fundamentally,” even if their stocks have been falling.
“Things are still pretty good going into earnings season,” Slimmon said.
He said that “it’s probably too early to really get aggressive on some of the cyclical areas” of the stock market. However, he did say that industrials and financials may see “a bounce” after the second quarter earnings reports are released.
As a portfolio manager, Slimmon said that he is “underweight” in stocks that are safe, like consumer staples and utilities.
He said that people have become “a little pickier” about where they spend their money, but they haven’t stopped spending. He called this “good news” for the Fed’s fight against inflation. “Customers are making prices go down,” he said.
The consumer price index (CPI) report for July 11 will give investors a look at U.S. inflation in June. At high rates, the Federal Reserve has been trying to bring inflation down to its long-term goal of 2% per year.
Since the last time we checked, Fed-funds futures on Friday showed a 71.1% chance that the Fed will lower its key interest rate by a quarter percentage point in September. The current range of 5.25% to 5.5% is where the rate is set.
The Dow Jones Industrial Average DJIA went up 0.2%, the S&P 500 SPX went up 0.5%, and the tech-heavy Nasdaq Composite COMP went up 0.9%. All of these stocks ended the day higher in the U.S. stock market. The Nasdaq rose for the fifth week in a row, while all three indexes went up for the week.
