Daily Market Color

Today’s Data Send S&P 500 to Another Historic High

Weak economic data fuels another risk-on day. Stocks and bonds extended yesterday’s rally after a string of cooler economic data releases were largely seen as boosting odds of Fed rate cuts this year. Futures-implied odds of at least a 25 bp reduction in September are now ~70%, and ~80% in November. The S&P 500 climbed ~0.50% ending today’s shortened trading session at 5,537, while UST yields were down ~4-9 bps on the long-end of the curve. Markets will now look ahead to Friday’s nonfarm payrolls data for more clues on the trajectory of the labor market.

Today’s data point to economic slowdown. June ADP employment data showed more moderate private sector hiring than expected, at 150,000 vs. 165,000 estimates, and below May’s upwardly revised 157,000 figure. Year-over-year, wages climbed 4.9% in June, the slowest growth since August 2021. ISM data released today showed that the service sector contracted the most April 2020, with the services index landing at 48.8, below estimates of 52.7 and last month’s 53.8 result. Chair of the ISM Services survey committee Steve Miller said, “We’re hoping that this is a blip…but it certainly wasn’t good news.”

Reports say President Biden recognizes post-debate risks. An anonymous “ally” of the president said today that Biden acknowledged he may not be able to recover from his poor debate performance if he doesn’t convince the public of his fitness in the next few days. The source said, “he knows if he has two more events like that [the debate], we’re in a different place.” White House spokesman Andrew Bates pushed back against the comments after they were published by the New York Times, saying they were “absolutely false.” Markets largely shrugged off the news and continue to expect the yield curve to steepen if Trump wins re-election.

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