Shares continue their robust advance as part of one of the most significant upswings over the last twenty years, bringing the S&P 500 close to its record peak.
And that’s despite
tariff chaos
, the bond market’s fear of the
rocketing federal deficit
, and
the war in Ukraine
.
The toughness displayed by Wall Street has been truly impressive, particularly since typical news stories would usually sabotage most recovery efforts.
For instance, the S&P 500’s increase of 6.3% last month was its
top May showing since 1990
—partially driven by significant gains in mega-cap technology stocks, as per Bank of America’s data.
Following much deliberation over the last seven weeks, the index now stands in positive territory for the year. Additionally, it has surpassed its international counterparts, as well as gold, cash, and corporate bonds.
Apart from the distortions caused by the pandemic-related months, the S&P 500 experienced a 28-day surge that reached almost 20% by May 19, marking the quickest rise since 2009. On Tuesday, the index finished 1.74% ahead for the year and stood 19.8% above its low point in early April.
And still, all this positivity might face a challenge from
Abrupt—and unforeseen—emptiness in the job market
, which continues to be crucial for the primary growth factor: consumer spending.
Economists are preparing for potentially poor employment figures due as soon as this Friday with the release of the monthly report from the Labor Department.
Samuel Tombs from Pantheon Macroeconomics anticipates a headline increase of approximately 125,000 new jobs, aligning with Wall Street’s prediction and indicating the most gradual pace of job creation almost since last year, excluding October’s figures. The data for October was depressed due to the effects of Hurricanes Leslie and Milton, along with labor stoppages involving Boeing workers and port dockhands across the country.
“May’s employment report probably will indicate that the pace of labor demand growth is decelerating, which could put additional pressure on the Federal Reserve to loosen policies later this year, even before they determine whether the new tariffs will only temporarily increase inflation,” stated Tombs, who serves as Pantheon’s chief U.S. economist.
Torsten Sløk, who leads economics at Apollo Global Management, anticipates that job creation will decelerate to around 120,000 per month this quarter, followed by estimates of roughly 64,000 and 66,000 for the latter part of the year.
The St. Louis Fed
estimates the so-called breakeven rate for job creation at around 153,000. Any sequence of figures falling short of this number might elevate overall unemployment, currently standing at 4.2%.
The
CME Group’s FedWatch tool
The Federal Reserve still anticipates their initial interest rate reduction for the year happening in September. However, a disappointing employment report from May might lead the central bank to adjust its projections for quarterly economic growth and inflation, set alongside their subsequent rate decision on June 18.
A quicker-than-anticipated reduction in interest rates due to sluggish economic expansion or an increase in reported joblessness might prompt a distinct market response compared to reductions prompted by growing inflationary pressures.
The May surge of the S&P 500, driven primarily by advancements in technology stocks, was complemented by investors shifting their focus towards more resilient areas like consumer staples, utilities, and healthcare.
This indicates that the market might shift towards safer stocks as we approach a more uncertain period linked to the end of President Donald Trump’s “Liberation Day” tariff truce on July 9, along with the August deadline for China and the U.S. to reach an agreement on trade conditions.
The definitive decision from the U.S. Court of Appeals for the Federal Circuit
on the legality of Trump’s so-called reciprocal tariffs is coming.
“Stock prices reflect a great deal of positive developments, whereas bonds encounter several considerable challenges,” stated Jeffery Buchbinder, who serves as the chief equity strategist at LPL Financial.
“We currently do not think it’s advisable for investors to elevate their portfolio risks; instead, they should keep waiting for a downturn before thinking about including more equities,” he further stated.
Send correspondence to Martin Baccardax
martin.baccardax@barrons.com
