Most major indexes traded higher during this holiday shortened week with only the red-hot Russell 2000 taking a bit of a breather. Under the surface, the chip sector came under some pressure as profit-taking set in to start the second half. Currently stocks are being influenced by the direction of interest rates, the strength of Artificial Intelligence (AI) and oil prices. That will most likely continue for the foreseeable future.
Best wishes for an enjoyable holiday weekend!
· Meta Platforms (META) shas reportedly established an internal business unit called “Meta Compute” in an effort to monetize its excess AI computing capacity. Shares have been under pressure this year as a result of their massive capital expenditures program, which will total approximately $135 billion in 2026. The company is hoping to improve their cash flow with Meta Compute. That said, it remains to be seen whether Meta is planning to allow other companies to run on their own software or if they intend to compete with full-service cloud providers such as Amazon AWS, Microsoft Azure and Google Cloud.
· Hold on a minute. As a result of the middling employment report (see below), 82% of investors expect the Fed to stand pat on interest rates at their upcoming meeting July 28-29, up from 71% prior. We would anticipate that barring any unforeseen event, this will be the case at the following two meetings as well. The Treasury yield curve is also indicating this expectation as the benchmark 10-year remains at the upper end of their 2026 trading range.
· Crude oil prices continued to soften, with international benchmark Brent crude dipping to $71.49 per barrel. Market pressures were alleviated by mounting optimism surrounding ongoing diplomatic negotiations aimed at establishing a permanent end to the war with Iran. Domestic relief followed, with U.S. average gasoline prices dropping to $3.84 a gallon from $4.29 last month.
Economic Data That Drove Market Sentiment This Past Week…
· U.S. Construction Spending rose 0.1% in May (-1.5% y/y), after rising 0.4% during April. Private Construction Spending rose 0.0% in May (-2.1% y/y), after rising 0.4% during April. Private Residential Construction Spending climbed 0.3% during May (1.8% y/y), after rising 0.8% in April. Private Nonresidential Construction Spending fell 0.3% during May, after dropping 0.3% in April (-6.6% y/y). Lastly, spending on Public Projects rose 0.5% during May (0.3% y/y), after rising 0.3 during April. (Source, U.S. Census Bureau)
· The Institute for Supply Management’s composite index of manufacturing sector activity fell to 53.3 during June from 54.0 in May. Generally, a reading above 50% indicates that the manufacturing economy is expanding, below indicates one in contraction. Of note were the changes in New Orders (56.0% v. 56.8%), Production (52.2% v. 54.3%), Supplier Deliveries (inverse, higher number indicates slower delivery times) (57.4% v. 60.6%), Inventories (51.4% v. 49.9%) and Employment (49.7% v. 48.6%). The Prices Paid Component declined to 73.0 during June from 82.1 in May. (Source, Institute for Supply Management)
· The Conference Board’s Consumer Confidence Index rose to 91.2 (-4.2% y/y) during June from 90.6 in May. The present situation index fell to 116.4 in June from 119.4 (-12.5% y/y) while the expectations component rose by 3.0 points to 74.4 (6.4% y/y) from 71.4 during May. Those surveyed saying that jobs are “hard to get” rose to 22.5% of respondents during June from 19.8% in May while those claiming that jobs were “plentiful” rose to 24.9% of respondents from 24.8% during those same months.
· Non-Farm Payrolls (approximately 80% of the U.S. workforce) rose by 57,000 during June, far less than the consensus estimate of 115,000. Payrolls for May and April were revised to 129,000 and 148,000 from 172,000 and 179,000 for a net loss of 74,000. This brings the net three-month average to 111,000 and the six-month average to 92,000. Economists continue to consider the impact of a lack of immigration, advances in technology as well as the current economic environment. Private Sector companies added 49,000 jobs while the Public Sector tacked on 8,000. Employment by the Federal Government rose 2,000 during June but has fallen by 327,000 since peaking in October 2024. Payroll data was influenced by health care (22,000), social assistance (25,000) and leisure and hospitality (-61,000). The Unemployment Rate ticked down to 4.2% from 4.3%. The Unemployment Rate had gotten as low as 3.4% in April 2023. According to the household survey, employment fell by 213,000 as the labor force shrank by 720,000. The Labor Force Participation Rate fell to 61.5% during June from 61.8% in May, its lowest level since March 2021. Excluding the COVID era, the Labor Force Participation Rat is at its lowest level since June 1976. We would take this number with a grain of salt, given the number of “independent contractors” flying under the radar. The Under-Employment Rate, which includes those unemployed as well as those who were either marginally attached to the labor force or were involuntarily working part-time fell to 7.9% during June from 8.1% in May and versus a seasonally adjusted 8.1% one year prior. Average Hourly Earnings rose 0.35% or $0.13 to $37.64 during June from $37.51 one month prior and by $1.28 or 3.52% from $36.36 y/y. Average Weekly Earnings rose 0.35% or $4.46 to $1,291.05 during June from $1,286.59 during May. Average Weekly Earnings over the past year have risen by $47.54 or 3.82% from $1,243.5. The Average Duration of Unemployment improved to 25.5 weeks in June from 26.0 weeks in May, up from 21.5 weeks (SAAR) recorded one year ago. The Median Duration of Unemployment fell to 11.0 weeks during June from 11.6 weeks in May, above 7.9 weeks (SAAR) one year ago. The number of Long-Term Unemployed (27 weeks or longer) fell 51,000 or 2.57% to 1,937,000 in June from 1,988,000 in May, above the level of 1,581,000 (SAAR) one year ago. Those unemployed less than 15 weeks totaled 57.9% of the unemployed while those unemployed 15 weeks and longer totaled 42.1% as compared to 58.4% and 41.6% one month ago. (Source, U.S. Department of Labor)
Economic Reports scheduled to be released this week, include the following – on Monday, Institute for Supply Management (ISM) May Services Purchasing Managers Index; on Tuesday, May U.S. Trade Balance; on Wednesday, May Wholesale Inventories and May Consumer Credit; and, on Thursday, Initial Weekly Claims for Unemployment Benefits and June Existing Home Sales.
Several potentially market moving companies are scheduled to report earnings, to include Helen of Troy (HELE) Levi Strauss (LEVI), PriceSmart (PSMT), PepsiCo (PEP), Progressive (PGR), Delta Air Lines (DAL) and Hyatt Hotels (H).