One Big Beautiful Bill & Job Growth Send Stocks To New Highs

Better-than-expected job growth and the passage of US tax legislation propelled the S&P 500 to all-time highs on Friday. Please note that the tax bill is named the One Beautiful Big Bill Act (OBBBA), so no partisan political views are intended by using its name.

One Chart (Still) Tells The Story

As the threat of recession has waned, as illustrated by the lower betting odds of recession, stocks have rallied to new highs. At the early April stock lows, the massive US tariffs announced on Liberation Day sent the betting odds of recession soaring to 65%. As the tariff threat eased and some progress was made on trade agreements, stocks have recovered sharply. The resiliency of the labor market and an expected economic boost from the tax cuts in the OBBBA helped push the probability of an economic downturn closer to the lows of the year.

Lower Economic Risk

The more economically sensitive cyclical stocks have outperformed less economically impacted defensives since the stocks bottomed, coinciding with the peak of recession fears. This data bolsters confidence in the view that the macroeconomic situation has been the primary driver of stocks so far this year.

Recent Market Performance

The S&P 500 reached an all-time high in the holiday-shortened week, now resting at 2.2% above its previous mid-February high after having declined by almost 20%. The Magnificent 7, comprising Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), NVIDIA (NVDA), Alphabet (GOOGL), and Tesla (TSLA), has recovered to only 3.5% below its mid-December level after being as much as 30% under the peak.

The strength in US bank stocks remains notable. The Federal Reserve recently revised its methodology, which will result in fewer Stress Capital Buffers (SCBs) being required for banks in the future. All other things being equal, less need for capital means better profitability and the ability to return more capital to shareholders. In addition, banks are economically sensitive, so they typically receive a boost from better economic outlooks.

Job Growth

Employment grew by 147,000 nonfarm jobs, which was above expectations. Previous data was revised slightly higher, which is a positive. The household survey data was solid, with a gain of 93,000 jobs, and the research series, which mirrors the payroll report criteria, rose by 751,000. The significant increase in the research series reverses much of the decline from the previous month.

Contrary to expectations, the unemployment rate ticked down to 4.1% from 4.2%. The decline was due to job gains of 93,000 in the household survey and a reduction of 130,000 in the labor force.

Wage growth was below expectations at 3.7% year-over-year, down from 3.8% last month. The average workweek hours were lower at 34.2, just above the five-year low of 34.1 in January, hampered by weather and the LA fires.

Monitoring the employment-to-population ratio among prime-age individuals, aged 25 to 54, should signal when concern about the unemployment rate is warranted. The improvement in the three-month average of the prime-age employment-to-population ratio is evidence that the labor market has been resilient. It should be monitored closely, but it has been able to maintain a steady level so far.

Initial weekly filings for unemployment benefits remain benign. However, continuing claims for benefits are above the lows, indicating some slowdown in people being rehired after losing their jobs.

Bottom line: The details of the jobs report were less impressive than the headline, but job growth was better than expected, and labor market health remains solid.

Federal Reserve

Markets currently expect two 25-basis-point (0.25%) Fed cuts in 2025, consistent with the median Fed projection. The better jobs data eliminated any chance of a cut in July, but the first move lower in 2025 is still expected in September.

What To Watch This Week

Economic data releases are sparse this week. In addition, there are only two companies in the S&P 500 scheduled to report earnings.

Now that the One Beautiful Big Bill Act (OBBBA) has been signed into law, President Trump’s July 9 tariff deadline should be the focus. While deals with Vietnam and the UK, as well as a détente with China, have been reached, the tariff levels of many large trading partners remain unsettled, barring a trade agreement. President Trump said letters are being sent to the countries notifying them of the effective tariff rate on their exports to the US, effective August 1, unless a trade deal is reached. Market participants will be keen to see if more trade deals are signed or if the possible economic drag from higher tariffs begins to weigh on the US economic outlook again.

Conclusions

Stocks have reacted favorably to the better economic data and the likely boost from the tax cuts passed last week. The hurdles at these valuation levels are higher, but optimism about future corporate earnings has improved as economic downside risks have receded. Another spike in effective tariff rates around President Trump’s July 9 deadline could raise concerns about the economic headwinds increasing again, so increased volatility would not be unexpected.

Source link

Visited 1 times, 1 visit(s) today

Related Article

Person sitting at a desk working on a laptop.

2 Unstoppable Growth Stocks to Hold for the Next 20 Years

The stock market has an incredibly impressive long-term track record of wealth creation, and we can reasonably expect it to continue delivering excellent returns over the next 20 years. Investors can capitalize on this by buying ETFs that track major indexes, or by investing in individual stocks that can perform as well, if not better,

Person speaking to a smartphone.

Down Over 50%, Should You Buy the Dip on SoundHound AI Stock?

Shareholders of SoundHound AI (SOUN -1.42%) were riding high in 2024 after the stock posted an incredible 836% gain for the year. But 2025 is a different story. SoundHound stock is down 55% from the all-time high it reached late last year. The rise and fall of SoundHound stock has a common denominator: Nvidia. In

Paul Chan said funds raised in HK's IPOs ranked world 1st in first half year

Paul Chan said funds raised in HK’s IPOs ranked world 1st in first half year

發佈日期: 2025-07-06 12:00 TVB News 已複製連結 Financial Secretary Paul Chan said Hong Kong completed 42 initial public offerings in the first half of the year, , raising more than HK$107 billion, ranking first in the world. Paul Chan said in his blog that funds raised by initial public offerings in the first half of the

Buffett’s 1 test to spot a ‘satisfactory’ asset

Drew Angerer / Getty Images Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below. The stock market has been on a roller coaster this year, as escalating trade tensions under President Donald Trump have rattled investor confidence. Many are worried about the fate of their finances. But investing

AI Stocks Look 'Eerily Similar' to the Dot-Com Craze, CIO Warns

AI Stocks Look ‘Eerily Similar’ to the Dot-Com Craze, CIO Warns

The intoxicating buzz around artificial intelligence stocks over the last few years looks concerningly like the dot-com bubble, top investor Richard Bernstein warns. The CIO at $15 billion Richard Bernstein Advisors wrote in a June 30 post that the AI trade is starting to look rich, and that it may be time for investors to

AUD/USD weekly technical forecast

AUD/USD Weekly Forecast: Traders Gear Up for RBA Rate Cut

The AUD/USD weekly forecast indicates some bearish sentiment. Risk sentiment was poor following the passage of Trump’s tax-cut bill through the US Senate. The US economy added 147,000 jobs in June, above the forecast of 111,000. The AUD/USD weekly forecast indicates some bearish sentiment as market participants prepare for an RBA rate cut. Ups and

Forex trader 2nd to be arrested in 1 cr digi-arrest fraud case

Forex trader 2nd to be arrested in 1 cr digi-arrest fraud case | Kolkata News

Kolkata: The Bidhannagar Police on Saturday arrested Debabrata Ghosh, a forex trader from Kazipara in Barasat, for duping an 86-year-old Salt Lake resident of Rs 1.1 crore between Aug 14 and Aug 29 last year with ‘digital arrest’ threats. Ghosh, a resident of DL Block in Salt Lake, is the second to be arrested in

USD/CAD weekly technical forecast

USD/CAD Weekly Forecast: Optimism Grows on Trade Talks

The USD/CAD weekly forecast shows optimism about US-Canada trade talks. Demand for the dollar fell after the US Senate passed Trump’s controversial bill. The pair recovered slightly at the end of the week after upbeat US employment numbers. The USD/CAD weekly forecast shows optimism regarding progress in trade negotiations between Canada and the US.  Ups

0
Would love your thoughts, please comment.x
()
x