
When I woke up this morning, I had one big question I wanted answered and it was all about what the US job figures did to support the current market view that an interest rate cut is coming in September.
The first fact I sighted to give me a clue was the Dow in the green. However, it wasn’t very green, which lowered my hopes.
The S&P 500 only just green and the Nasdaq red (though not too red) made it clear that the jobs report didn’t deliver the ‘hoped-for’ first fatal blow for sticky inflation in the USA, which could be a song for the Boss, Bruce Springsteen! — but I digress.
It was time for the actual numbers. And this is how they printed:
- 272,000 jobs were created in May!
- Economists expected 190,000!
- Unemployment did increase from 3.9% to 4%.
- But average hourly wages rose 0.4%.
- This was a hotter jobs report than was needed and yep, bond yields rose.
Conclusion? Rates mightn’t be ready to be cut in September and the Yanks could even end up lagging us when it comes to the first cut, if our economic data continues to tell us the story that came out of Wednesday’s economic growth revelation.
That was when we saw the March growth figure was 0.1%, while the annual number was 1.1%, which was only that high because of growth nine to 12 months ago. The December quarter only brought 0.2% growth, indicating that those 13 rate rises are having a dampening effect on spending and growth, but we still need to see it show up in the Consumer Price Index (CPI).
And that’s the same for the US, which makes next week’s Fed meeting, and the data drops crucial to how stocks perform in coming weeks.
Locally, our jobs report on Thursday could be a share price driver, and so could another rise in the iron ore price. But the revealed US statistics (i.e., Monday’s inflationary expectations and Wednesday’s CPI) will be HUGE and will be closely monitored by Wall Street.
If they reinforce the message from May’s jobs report that US inflation remains stuck on ‘sticky’ over 3%, then what Fed boss Jerome Powell says to the market on Thursday (our time) could help or hinder the current market optimism that says rates will be cut and stocks should go higher.
On CNBC this morning, the perma-bull Tom Lee of Fundstrat Global Advisors said he was going to buy stocks on Friday no matter what the jobs report said, but he admitted he would have bought more if the numbers had said the labour market’s demand for workers was contracting more strongly.
So, where is this market confidence coming from? I think former Goldman Sachs President and economic advisor to Donald Trump (who resigned from his role after a short time) has explained it well with this: “We should all be happy that we’ve got a strong economy… At the end of the day, it’s all about the economy, it’s all about GDP growth, GDP corporate earnings, the health of the consumer, [and] that’s going to win out all the time in the long run.”
Cohn is now vice chairman at IBM and his point that growth is important suggests that rate cuts would be considered good. However, they aren’t needed if it means the next worry becomes a recession!
That said, the new worry for next week is that the inflation news puts a rate rise back on the table. The stock market and especially the Nasdaq Composite index would find it hard to sustain its 12-month rise of over 30% if Jerome Powell flags another rate rise might be needed to hose down the fires heating up the economy and inflation.
Interestingly, just like here, the US has a problem with services inflation, while goods inflation is reacting to higher interest rates. So, for both countries, next week’s data drops will be big news for stock prices and the health of our portfolios.
Because of this US jobs report, our market is expected to open down 51 points on Monday.
To the local story last week, it was a positive for the five trading days, with the S&P/ASX 200 index up 158.30 points (or 2.06%), helped by a positive lead from Wall Street and a local economic growth number that helped to lower the demands for more rate rises here. On top of these positive forces for stocks, commodity prices sneaked higher, with the iron ore price helping our big miners’ share prices. (See the “How Top Stocks Fared table below for the gains.)
The AFR reported: “On Friday, the ASX’s best performing sectors were consumer discretionary and materials, which added 1.2 per cent and 0.8 per cent, respectively.”
It also told us that “shares in IDP Education bounced 5.7 per cent to $15.33 after falling more than 7 per cent on Thursday, when the company warned of a large reduction in business due to restrictive policies in Australia and around the world for international students”.
In other news, Life360 launched a secondary listing of shares on the Nasdaq index in the US at US$27 a share but the stock lost 10.39% for the week to $13.80.
What I liked
- Rate cuts in Europe and Canada.
- The local 0.1% economic growth number for the March quarter (which made it 1.1% for the year), which has quietened down those calling for rate rises.
- Local government spending continued to offset the weakness in household consumption, rising 0.6% over the quarter (or 4.6% over the year), which explains why the recent Budget wasn’t a tough one.
- Productivity (aka output per hour worked) barely changed this quarter and over the last year, but it has improved from being negative.
- US jobless claims 229,000 last week and the trend is up, which is good for future rate cuts.
- JOLTS data in the US on Thursday, which showed job openings slowing.
- US ISM Manufacturing in May was 48.7 versus a forecast of 49.6.
- Oil prices have fallen three weeks in a row, which is a plus for inflation.
What I didn’t like
- Residential investment is still very lacklustre, falling for the third consecutive quarter at a -0.5% quarter-on-quarter or -3.4% year-on-year pace.
- Private business investment (which has held up a bit better in this cycle so far) fell 0.8% over the quarter, due to a large 4% drop in non-residential building construction.
- CoreLogic data showed national average home prices rose 0.8% in May, their strongest rise since last October.
2024: A year living patiently or dangerously?
Excuse my irreverence to playwright Samuel Beckett, who wrote Waiting for Godot, but this year could also be described as the year Waiting for ‘Dropo’! You see, we’re patiently waiting for a drop in inflation that will lead to a drop in interest rates but if the drop doesn’t come, like Godot (who never came in Beckett’s play), then this year could be dangerous for stocks, especially if interest rates rise.
I’m not investing on that expectation but as your market messenger, I can’t be one-eyed.
Switzer This Week
Switzer Investing TV
- SwitzerTV Investing: Jun Bei Liu on shorted stocks that are a good buy + Paul Rickard explains how to create a great income portfolio
- BOOM, DOOM, ZOOM: Peter Switzer and Paul Rickard answer your questions on ALX, NEC, LOV & more
Switzer Report
- Get defensive exposure through infrastructure ETFs
- “HOT” stock: NAB
- Questions of the Week
- Is it still smart to have a tech & growth play dominating your portfolio?
- Our growth portfolio outperforms as market posts small gain in May
- “HOT” stock: TechnologyOne Ltd (TNE)
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- Buy, Hold, Sell — What the Brokers Say
Switzer Daily
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- Debt survey warns RBA not to raise rates
- The British House of Commons is too big – by Malcolm Mackerras
- Read this book and get thinking outside the square… – by Remo Giuffre
The Week Ahead

Top Stocks — how they fared

Most Shorted Stocks

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before
Quote of the Week
Loved this headline from CNBC: “Strong market fundamentals justify a further equity rally, UBS says…” And this from the chief investment officer of UBS Global Wealth Management, Mark Haefele, was pretty damn good as well: “In our base case, we see the S&P 500 reaching 5,500 by year-end amid Fed rate cuts, robust profit growth, and the secular growth trend brought by artificial intelligence (AI).”
Chart of the Week
This chart showing real GDP per head is going negative should stop the RBA sweating on an interest rate rise.

Disclaimer
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.