U.S. Stock Market: Riding the Wave of Lower‑Rate Optimism
Last week the S&P 500 kept hitting new record highs, largely because a handful of growth stocks were pulling the herd along. The Russell 1000’s growth slice outperformed value by about 4 percentage points, but the mid‑cap and small‑cap indexes weren’t as happy, trimming their gains.
Nasdaq surged more than 70 % from its low in mid‑2022, while the Dow lifted roughly a third in the same span. The rally is largely fueled by the belief that interest rates might start shrinking soon – thanks to hints of a softer economy and easing price pressures.
- Manufacturing Pullback: The Institute for Supply Management saw a dip, cutting the manufacturing PMI to 48.5 – a clear sign of contraction.
- Construction Surprise: Even construction slid unexpectedly.
- Services Dip: Services PMI fell from 53.8 to 48.8 between May and June, yet another survey from S&P Global confirmed the sector was still growing.
Labour market news was a mixed bag. The Job Openings and Labor Turnover Survey (JOLTS) jumped to 8.14 million openings in May, but ADP data showed private‑sector hires sliding from 160,000 to 150,000.
- Chief U.S. Economist Blerina Uruçi noted that hiring is getting back to pre‑pandemic levels.
- Official month‑to‑month job gains hit 206,000 in June – a touch lower than May’s pace.
- With government and health‑care hiring cushioning the dip, the unemployment rate edged up to 4.1%.
- Annual wage inflation fell to 3.9%, which is better news for many households.
Federal Reserve Chair Jerome Powell teased that the 2 % inflation target might not be reached until 2025 or 2026. Long‑term Treasury yields dipped over the week, echoing the hopeful sentiment in the markets.
Europe Grows Pleased: Politics, Policy and a Bit of Fortune
European stocks marched higher on a 1 % lift in the STOXX Europe 600. Political drama calmed – France’s far‑right fell short of a majority, and the UK saw the Labour Party secure a decisive win. Rachel Reeves is poised to become the first female Chancellor, while Marine Le Pen’s National Rally just missed a majority in France.
- France’s CAC 40 up 2.62 %
- Germany’s DAX nudged 1.32 %
- Italy’s FTSE MIB rose 2.51 %
- UK’s FTSE 100 gained 0.49 %
ECB President Christine Lagarde raised a slightly hawkish tone at her annual retreat, stressing that inflation still feels sticky – especially in services. June minutes showed a wobble over a potential rate cut due to higher wage growth and stubborn price rises.
- Eurozone inflation fell to 2.5 % YoY in June.
- Germany’s manufacturing orders dropped 1.6 % and output shrank 2.5 %.
- France reported a 2.1 % slump in industrial production.
Asia: Japan’s Export‑Boosting Star & China’s Softening Reality
Japan’s markets zoomed to record highs – the Nikkei 225 up 3.36 % and the broader TOPIX nudged 2.65 %. A weaker yen helped exporters, though it later tightened. The country’s 10‑year bond yields hit a peak not seen since 2011, before easing.
- Japan’s biggest union win a 5.1 % wage hike – the largest in 30 years, though a touch shy of the earlier forecast.
- Consumer spending unexpectedly fell by 1.8 % YoY in May.
- GDP for Q1 was trimmed to a 2.9 % annual contraction, worse than the initial 1.8 % estimate.
In China, stocks dipped on shaky manufacturing data, echoing worries about a slowdown. The Shanghai Composite and CSI 300 slid, while Hong Kong’s Hang Seng ticked up 0.46 %. Manufacturing PMI dipped to 49.5 for the second month running, signalling contraction, though services PMI nudged above 50.
- New home sales fell 17 % in June, still better than the 34 % plunge in May.
- Property slump persisted, even as the government rolled out a rescue package.
Overall, U.S. markets grew on the promise of falling rates, European markets rode the wave of political calm and cautious optimism, Japan celebrated record highs powered by wages and a weak yen, while China wrestled with a slowing factory sector and a housing market still in the red.
