The U.S. stock market has extended its summer rally, with the S&P 500 index climbing to yet another record peak Friday as investors weighed the latest jobs report.
“The economy is cooling, but not collapsing,” said Andrew Slimmon, senior portfolio manager for U.S. equities at Morgan Stanley Investment Management, in a phone interview Friday. “The market is not pricing in anything more than a slowdown.”
The U.S. economy added 206,000 jobs in June while the unemployment rate rose slightly to 4.1%, according to a report Friday from the Bureau of Labor Statistics. While jobs growth in the U.S. labor market is slowing this year, the unemployment rate remains relatively low.
The stock market’s “tone” seems consistent with the view that the Federal Reserve may start lowering interest rates this year because inflation is easing toward its target, as opposed to a “dire cut” made on fears that the U.S. economy is “falling off a cliff,” according to Slimmon. Traders in the federal-funds futures market are largely expecting the Fed to begin cutting rates in September.
The S&P 500
SPX
ended at 5,567.19 points on Friday, its 34th record closing high of the year, according to Dow Jones Market Data. The index has rallied 16.7% so far in 2024, kicking off July with gains.
“We’ve had a narrow market,” Slimmon said, referring to the small group of Big Tech stocks that have fueled the S&P 500’s gains this year. But many companies elsewhere in the economy are “doing well fundamentally,” even if their stocks have been lagging, he noted.
“The setup going into earnings season remains pretty good,” Slimmon added.
Although “it’s probably too early to really get aggressive on some of the cyclical areas” of the stock market, he said that industrials and financials may see “a bounce” after upcoming corporate earnings reports for the second quarter.
Read: Stock market’s upcoming earnings season may delay ‘overdue’ pullback for S&P 500, says LPL
As a portfolio manager, Slimmon said he’s “underweight” on defensive areas of the stock market, such as consumer staples and utilities.
While consumers have become “a little pickier” about where they spend money, they haven’t stopped spending, he noted — calling the development “good news” for the Fed’s inflation battle. “Consumers are pushing back on prices,” he said.
Investors will get a reading on U.S. inflation in June from the consumer-price index next week, with the CPI report due out July 11. The Fed has been keeping rates elevated in a bid to bring inflation down durably to its 2% annual target.
Read: ‘Goldilocks labor market’ doesn’t warrant Fed’s restrictive monetary policy, says Lazard
Fed-funds futures on Friday showed a 71.1% chance that the Fed cuts its benchmark rate by a quarter percentage point in September, from the current range of 5.25% to 5.5%, according to the CME FedWatch Tool, at last check.
The U.S. stock market closed higher Friday, with the Dow Jones Industrial Average
DJIA
rising 0.2%, the S&P 500
SPX
climbing 0.5% and the technology-heavy Nasdaq Composite
COMP
advancing 0.9%. All three indexes logged weekly gains, with the Nasdaq rising for a fifth straight week.
This post was originally published on Market Watch
