As the US stock market returns to historical highs, the June non-farm payroll report is coming in strong! The employment market influences the direction of Federal Reserve policy
The U.S. June non-farm payroll report will become the market's focus, with job vacancies, wage data, and manufacturing and service activity data receiving significant attention. The S&P 500 index has returned to historical highs for the first time since February, as market optimism about a Federal Reserve rate cut rises. The probability of a rate cut by the Federal Reserve at the end of July is estimated at 18.6%, while the likelihood of a rate cut before the end of September is as high as 93%. Federal Reserve officials have hinted at a possible rate cut, but Chairman Powell remains cautious about this
According to the Zhitong Finance APP, driven by optimism about the Federal Reserve's upcoming interest rate cuts and a reduction in tariff concerns, the stock market has risen, with the S&P 500 index returning to historical highs for the first time since February. Last week, the S&P 500 index rose by 3.5%, and the Nasdaq Composite Index increased by over 4.1%, both closing at record highs.
This week, the U.S. non-farm payroll report for June will be the focus of the market, with close attention also paid to the latest data on job vacancies, wage figures, and manufacturing and service sector activities. Investors will also closely monitor the latest developments regarding the Trump administration's tariff measures, especially as the tariff suspension deadline set by Trump on July 9 approaches. It is worth mentioning that due to the Independence Day holiday, the market will close early on Thursday (July 4) and will be closed on Friday.
Increased Likelihood of Summer Rate Cuts
The market is becoming increasingly optimistic that the Federal Reserve may soon cut interest rates. According to data from the CME FedWatch Tool, as of last Friday, the market estimated an 18.6% chance of a rate cut at the Fed's next meeting at the end of July, up from 14.5% the previous week. Meanwhile, investors are betting that the likelihood of a rate cut before the end of September has significantly increased, with the market currently estimating a 93% chance of a rate cut by then, up from 70% a week ago.
This shift has emerged as several Federal Reserve officials recently hinted that rate cuts could begin at the July meeting. Federal Reserve Governor Michelle Bowman noted in a speech last week that while the labor market still shows some resilience, it "does not seem as vibrant as before." She stated, "As inflation continues to move toward the 2% target, total demand shows signs of weakness, and the labor market exhibits some signs of fragility, I believe we should pay more attention to the downside risks facing our employment goals in the future."
However, Federal Reserve Chairman Jerome Powell has been more cautious regarding the question of rate cuts. Last week, he emphasized during his testimony before the House of Representatives that the Fed is "in a favorable position to wait" and is not in a hurry to adjust interest rates.
Ernst & Young Chief Economist Greg Daco stated that he expects the Federal Reserve to cut rates in September. He said, "By then, we will see demand further weaken, the labor market unfortunately slow down, and income growth decline, ultimately leading to a slowdown in consumer spending activity."
Focus on Employment Data
Signs of a cooling labor market have become a key part of the debate surrounding Federal Reserve policy, making the upcoming U.S. non-farm payroll report for June, set to be released at 20:30 Beijing time on Thursday, even more noteworthy. Economists expect the report to show an increase of 116,000 in non-farm payrolls for June, down from 139,000 in May; the unemployment rate is expected to rise from 4.2% in May to 4.3%Wells Fargo Chief Economist Jay Bryson and his team wrote in a client report: "We expect the trend of slowing hiring to continue. Due to high uncertainty, restrictive monetary policy, and the ongoing hiring freeze implemented by the federal government, demand for new employees remains subdued."
Return to Historical Highs
The latest historical closing high of the S&P 500 index marks an increase of over 23% since the low on April 8. Currently, the market generally believes that the biggest tariff panic has passed. Meanwhile, economic expectations and corporate earnings forecasts have been revised upward again, and Wall Street strategists are becoming increasingly optimistic about the outlook.
Charles Schwab's Head of Trading and Derivatives Strategy Joe Mazzola stated: "The market still exhibits bullish sentiment. Therefore, we see that investors are looking for buying opportunities during market pullbacks."
