What to know this week (Video)

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A crucial week of labor market data will greet investors during a holiday-shortened trading week beginning in July, the third quarter and the second half of 2024.

The S&P 500 (^GSPC) enters the third quarter up 14.5% year-to-date, while the Nasdaq Composite (^IXIC) is up more than 18%. The Dow Jones Industrial Average (^DJI) has gained a modest 3.8% in the first six months of the year.

With stocks near all-time highs and recent inflation trends proving more positive, all eyes have turned to the labor market for signs of weakness as the Federal Reserve maintains its restrictive stance on interest rates.

The June employment report will offer a solid view of the labor market on Friday, while updates on private payrolls and job openings will also be in focus throughout the week. Updates on activity in the manufacturing and services sectors will also be scattered throughout the agenda.

Constellation Brands (STZ) is expected to be the focus of the only notable corporate earnings report during an otherwise quiet week before the big banks officially kick off second-quarter earnings season the following week.

Markets in the US will close early on July 3 (1 pm ET) and will remain closed on July 4 for Independence Day.

The June employment report is due out Friday morning and is expected to show a further cooling in the labor market.

The report is expected to show that 188,000 nonfarm jobs were added to the U.S. economy last month, and unemployment held steady at 4%, according to Bloomberg data. In May, the US economy added 272,000 jobs, while the unemployment rate rose slightly to 4%.

Michael Gapen, a U.S. economist at Bank of America, reasoned that such a report would still show a labor market that is “cooling, but not cool.”

On Friday, the latest reading of the Fed’s preferred inflation gauge showed inflation slowed in May as prices rose at their slowest pace since March 2021.

The print was seen as a step in the right direction in the Federal Reserve’s fight against inflation.

Positive trends in inflation, combined with signs of slowing economic activity, have led economists to argue that the Fed should lean toward cutting interest rates sooner rather than later.

“Emerging signs of weakness in the labor market show that Fed officials should also be alert to risks to the full employment side of their mandate,” Oxford Economics deputy chief U.S. economist Michael Pearce wrote in a note to clients.

Construction workers work on the construction of a new building partially covered with a large American flag on September 25, 2013 in Los Angeles, California, where the state's governor, Jerry Brown, signed a law that will increase the minimum wage of California from $8 to $10 per hour by 2016. AFP PHOTO/Frederic J. BROWN (photo credit should read FREDERIC J. BROWN/AFP via Getty Images)

Construction workers work on a new building partially covered with a large American flag on September 25, 2013 in Los Angeles. (FREDERIC J. BROWN/AFP via Getty Images) (FREDERIC J. BROWN via Getty Images)

As in 2023, most of the 2024 stock rally has been driven by a few big tech stocks.

At midyear, more than two-thirds of the S&P 500’s gains for the year came from Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META ) and Broadcom (AVGO). Nvidia alone has driven almost a third of these gains.

Despite some short-lived rallies throughout the year, only two sectors have outperformed the S&P 500 this year: communications services and information technology. Both are up more than 18% compared to the S&P 500’s roughly 15% gain.

This has kept alive the debate over whether the second half of the year will bring a broadening of the stock market rally, a hot topic on Wall Street.

Morgan Stanley chief investment officer Mike Wilson recently argued in a research note that given weak economic data and high interest rates, a true broadening in which non-tech sectors take over is unlikely.

“Narrow breadth may persist, but it is not necessarily a headwind to future returns in and of itself,” Wilson said. “We think the expansion is likely to be limited for now to high-quality, large-cap pockets.”

Most strategists have reasoned that mega-cap tech companies have led the rally for good reason, as their earnings continue to outperform the market. That is expected to be the case during second-quarter earnings as well.

Nvidia, Apple, Alphabet, Microsoft, Amazon and Meta are all expected to increase their earnings by a combined 31.7% in the second quarter, according to UBS Investment Bank U.S. equity strategist Jonathan Golub.

The S&P 500 itself is expected to increase its earnings by a more modest 7.8%.

This means that most of the earnings growth is expected to come from big tech once again. And a similar trend has been seen in earnings revisions for the second quarter.

Since March 31, Golub’s work shows that earnings estimates for the S&P 500 have fallen just 0.1%, much less than the typical 3.3% drop seen on average. This is largely due to a 3.9% upward revision for the six largest tech companies mentioned above.

As we enter the second half of the year, the debate over whether big tech companies’ consistent, expectation-beating results will fade will remain central.

Weekly calendar

Monday

Economic data: S&P Global U.S. Manufacturing, end-June (expected 51.7, previously 51.7); Construction Spending, MoM, May (0.3% expected, -0.1% previously); ISM Manufacturing, June (expected 49.2, previously 48.7)

Profits: No notable gains.

Tuesday

Economic data: Vacancies, May (7.86 million expected, 8.06 million planned)

Profits: No notable gains.

Wednesday

Economic data: MBA Mortgage Applications, week ending June 28 (0.8%); ADP Private Payrolls, June (+158K expected, +152K before); S&P US Global Services PMI, end-June (expected 52.3, previously 55.1); S&P Global US Composite PMI, end-June (previous 54.6); ISM services index, June (expected 52.5, previously 53.8); Prices of ISM services paid, June (58.1); Factory orders, May (0.3% expected, 0.7% before); Durable goods orders, end of May (0.1%)

Profits: Constellation marks (STZ)

Thursday

The markets are closed for the July 4 holiday.

Friday

Economic calendar: Nonfarm payrolls, June (+188K expected, +272K previously); Unemployment rate, June (4% expected, 4% previously); Average hourly earnings, month over month, June (+0.3% expected, +0.4% previously); Average hourly earnings, year over year, June (+3.9% expected, +4.1% previously); Average weekly hours worked, June (34.3 expected, 34.3 previously); Labor force participation rate, June (62.6% expected, 62.5% previously)

Profits: No notable gains.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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