Before the bell

Market Highlights

• Inflation Concerns Eased: Markets found solace in signs that a softening labor market could lead to further moderation in inflation.

• Interest Rate Movements: The 10-year Treasury yield fell back below 4.3%, having started July close to 4.5%, reflecting changing expectations about future Fed policies.

• Employment Data: The U.S. economy added 206,000 jobs in June, with the unemployment rate ticking up to 4.1% due to a strong increase in the workforce.

• Bond Market Reactions: Bond yields saw fluctuations, with the 10-year Treasury yield moving lower to 4.43% after earlier gains, influenced by labor market and ISM services activity reports.

• Fed Rate Cut Expectations: Markets continued to price in the likelihood of two Fed rate cuts by the end of the year, especially if inflation continues to moderate.

Weekly Spotlight

• Tesla: The electric vehicle giant's shares soared over 10% after reporting second-quarter vehicle deliveries that exceeded expectations. This strong performance highlighted Tesla's continued dominance in the electric vehicle market, despite increasing competition. The impressive delivery numbers also underscored Tesla's ability to scale production efficiently and meet high demand, which bodes well for future earnings and market share growth.

• JP Morgan: Anticipation grew for the upcoming earnings report from JP Morgan, with investors looking for insights into the bank's performance amidst a backdrop of economic uncertainty and fluctuating interest rates. Analysts expected strong results driven by robust trading revenues and steady loan growth, reflecting the bank's resilience and adaptability in a challenging financial environment.

• Citi: Investors were keenly awaiting Citi's earnings release, focusing on how the bank navigated the quarter's volatile market conditions. Expectations were centered around steady performance in its institutional clients group and consumer banking divisions, with particular interest in any updates on cost-cutting measures and strategic initiatives aimed at improving profitability and efficiency.

• Wells Fargo: Wells Fargo's earnings were anticipated with interest, particularly in light of its ongoing efforts to rebuild its reputation and improve operational performance. Analysts predicted solid earnings driven by cost management and growth in its commercial banking segment, with additional focus on any progress in regulatory compliance and risk management enhancements.

Easing Inflationary Pressures: A Look at ISM Manufacturing and Services Prices

The chart illustrates the trend in the ISM Manufacturing and Services Prices Paid Indexes from December 2020 to June 2024. Both indexes reflect the costs that businesses are incurring for inputs. The ISM Manufacturing Prices Paid Index, depicted in blue, and the ISM Services Prices Paid Index, shown in gold, have both experienced significant fluctuations over this period. Notably, the prices paid for manufacturing peaked around mid-2021 and then sharply declined in mid-2022, continuing to hover at lower levels into 2024. Similarly, the services prices paid index saw an upward trend until early 2022, after which it exhibited a gradual decline, reaching near recent lows by mid-2024. This downward movement in both indexes suggests a general decrease in input cost pressures, which could indicate easing inflationary trends in both manufacturing and services sectors.

Outlook Snapshot: The Week Ahead

As we look ahead to the coming week, the market's focus will shift toward the release of crucial corporate earnings reports and further labor market data. Investors will be keenly watching the nonfarm payrolls report for June, which is expected to show an addition of 190,000 jobs. This will provide further clarity on the health of the labor market and its implications for consumer spending. Additionally, the Federal Reserve's upcoming meeting at the end of July will be a significant event, with markets widely anticipating that rates will be held steady. However, speculation about potential rate cuts later in the year will continue to shape market sentiment. As earnings season kicks into high gear, the performance of cyclical sectors like financials, industrials, and consumer discretionary will be closely monitored for signs of economic strength or weakness. This week's data and earnings releases will be pivotal in assessing the sustainability of the recent market rally and determining the path forward for both stocks and bonds in the second half of the year.