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After The Close - Stocks pulled back somewhat on Friday, on not-quite-as-firm prospects that the Federal Reserve will lower interest rates later this month.

Investors returning from Thursday’s Independence Day holiday were greeted with a stronger-than-expected monthly government employment report an hour prior to the opening bell. The Labor Department issued word that the nation added 224,000 jobs in June, which made up a good part of May’s weak showing. The three-month average for payroll additions now stands at a comparatively healthy 171,000.

The positive takeaway is that the job market in June bounced back from a subpar performance in the previous month. The downside to the data is that it somewhat lessens the case for the Federal Reserve to reduce interest rates right away. The Fed’s next policy decision is due on July 31st.

To be sure, there are still reasons for the central bank to ease monetary policy. The economic data of late has indicated weakness in areas such as manufacturing, housing, and consumer spending. Few inflationary pressures are apparent, either.

As a result, the Fed could still see fit to lower rates as a sort of ``insurance policy’’ against what is shaping up as a broad global slowdown. But today’s strong payroll number makes it more likely that only a quarter-point rate cut would be in order, rather than the aggressive half-point rate reduction some had been looking for.

The outlook for lower interest rates has clearly been a driving factor behind higher stock prices lately.

Today’s stock market decline, which saw the Dow Industrials fall by more than 200 points early on, was eventually contained as traders probably concluded that lower rates remain part of the equation going forward.

In other markets, the yield on the benchmark 10-year Treasury note rose jumped to 2.04%, from 1.95%, reflecting the positive news on the employment front. (Yields move inversely to prices).

Notably, the price of gold dropped sharply after a nice run-up this year. The view that interest rates might not fall as quickly as previously envisioned means lingering competition for gold, which does not generate income on its own.

At the end of the day, the Dow Jones Industrial Average slipped 44 points; the S&P 500 gave back five points; and the NASDAQ edged eight points lower.

Investors will be watching news on earnings, interest rates, and the economy closely in the weeks ahead for clues as to the stock market’s near-term direction. - Robert Mitkowski

At the time of this writing, the author did not have positions in any of the companies mentioned.


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Before The Bell - Wall Street resumed a normal day's trading this morning following a pre-holiday shortened session on Wednesday and a complete closure yesterday to commemorate the Independence Day holiday. Wednesday's strong opening would lead to another session of gains that saw the S&P 500 hit one more record high, and the Dow Jones Industrial Average approach a peak, as well, and finally establish one near the close. The stock market, meanwhile, continues on an upbeat trend on high hopes for an eventual trade pact with China and also on a hoped-for interest rate reduction by the Federal Reserve.

As for the Fed, the guessing is that the bank will vote to lower interest rates as early as this month, when its Federal Open Market Committee next meets. Recent slowdowns in the economy, as underscored by an undistinguished reading in manufacturing from the Institute for Supply Management (issued Monday), and a soft, but still fairly supportive, survey on non-manufacturing activity from the ISM on Wednesday, suggest as much. As to the latest ISM report, it came in at 55.1 during June, or well above a neutral reading of 50.0, but below the May tally of 56.9.

Still, the market roared ahead, with the Dow climbing to a gain of more than 100 points in late morning. Meanwhile, in other news, jobless claims, which were posted before the market opened, produced few surprises, while the Automatic Data Processing (ADP) survey on private-sector payrolls came in shy of forecasts. Please note that the June non-farm payroll report from the government (discussed below) was issued moments ago. Also, on the economic front, the government reported that the nation's trade deficit increased from $51.2 billion in April to $55.5 billion in May, a rise that further constrained GDP growth in the just-ended quarter.

The stock market, meantime, strengthened additionally in the final hour of trading, with all of the major averages closing at session, and in some cases, all-time highs, on optimism about a trade pact between the United States and China and an interest rate cut by the Federal Reserve. Expectations for the latter are high at the late-July Fed gathering, with forecasts now being at virtually 100% for a rate reduction at that time. In anticipation of such a rate cut, the yield on the 10-year Treasury note fell further Wednesday, ending down at 1.95%, its lowest level since 2016.

All told, the Dow, which as noted, forged a record high, would close up 179 points, to 26,966. That broke the existing record by 15 points. The S&P 500, also at a record, would climb 23 points, to just under 3,000, and the NASDAQ would add 61 points. This strong showing followed a stellar opening six months. Now, the Street will start to focus on second-quarter corporate earnings, which will start to come out over the next two weeks. On that count, shares of Tesla (TSLA) soared by more than 4%, after an earlier gain of better than 6%, after the automaker reported record delivery and production numbers.

Now, looking ahead at the week's final session, and after a mixed performance in Asia overnight and somewhat lower stock prices in Europe so far this morning, we see that oil quotations are down modestly and Treasury note yields are up notably, again surpassing 2.00% on a materially stronger jobs report. Finally, there is that employment report. On point, after forecasts of a gain of 160,000 new hires, the Labor Department said that non-farm payrolls had risen by a strong 224,000 in June. The jobless rate, tabulated in a separate survey, edged up to 3.7%, which only may mean that more Americans were activity looking for work last month. 

In other details of this report, the government noted that the so-called labor-force participation rate stayed little changed at 62.9% last month, while average hourly wages increased by $0.06 in June. In May, the increase was $0.09. For the past year, labor costs are up 3.1%. Meanwhile, job growth for April and May were revised just incrementally, with April's increase going from 224,000 to 216,000. The rise in May payrolls was revised from 75,000 to 72,000. As for the futures, the stronger-than-expected jobs numbers sent some slight chills through the markets, as some might sense that the Fed will now be less inclined to reduce interest rates when it meets later this month. We disagree, as most of the data have been on the weak side. In any event, the futures fell back a bit after the report's release. That setback aside, we could still make fresh highs today in what is likely to be light semi-holiday trading.  - Harvey S. Katz, CFA

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.