As we move through 2024, it’s a great time for investors to reevaluate their portfolios and consider new investment themes. In today’s Steady Investor, we take a look at three to consider for the remainder of the year:
- U.S. unemployment rate crosses 4%
- Fed Chairman Jerome Powell testifies before Congress
- What to watch during the next earnings season
The U.S. Unemployment Rate Crosses 4% for the First Time Since 2021 – At first glance, the Labor Department’s jobs report released last Friday looked like great news—the U.S. economy added 206,000 new jobs, slightly beating expectations.1
Total Nonfarm Payrolls, Monthly Change Since January 2021
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But the main takeaway from this report was actually that the jobs market was decisively cooling. The unemployment rate rose to 4.1%, marking the first-time unemployment higher than 4% since 2021. The Labor Department also revised job gains in April and May lower, by a combined 111,000 jobs. And average hourly earnings rose 3.9% year-over-year in June, the smallest increase since 2021. These data points don’t exactly paint a picture of the labor market collapsing. But it does indicate a ’leveling off’ within the labor market, which investors largely viewed in a positive light. The reason is that a cooling jobs market—as opposed to a jobs market that’s too hot—gives the Fed some breathing room when it comes to setting monetary policy. The Fed is increasingly aware of the risk that keeping rates too high for too long could lead to more job losses over time, which at this stage would not be a desirable outcome. If inflation continues to trend lower in the coming months, further cooling in the jobs market would be viewed as a strong rationale for cutting rates in the fall—perhaps at the September meeting.
Fed Chairman Jerome Powell Testifies Before Congress – Federal Reserve Chairman Jerome Powell testified before Congress last week, and market-watchers were probing his comments for any hints for when rate cuts would commence in this cycle. Chairman Powell did not offer any clear signals. But he did slightly reposition the Fed’s stance when it comes to how they’re weighing risks in the economy. In Powell’s words, “elevated inflation is not the only risk we face,” adding that “we’ve seen that the labor market has cooled really significantly across so many measures…it’s not a source of broad inflationary pressures for the economy now.” This statement is important because for much of last year, the Fed was worried that a hot labor market and rising wages were contributing to sticky inflation, and a cooling labor market was essentially a stated goal. With the softer labor market data cited above, Powell conceded that allowing the jobs market to cool too much was surfacing as a key risk, stating that “we’re very much aware that we have two-sided risks now.” All told, Powell seemed to be positioning for a rate cut later this year, assuming inflation data in the next three months continues to show signs of improving.4
Earnings Season Gets Underway. Here’s What to Watch – With a blink of an eye we’re back in earnings season, and our colleagues at Zacks Investment Research have compiled three key factors to watch for Q2’s reports. The first is that we’ve seen a steadily accelerating earnings growth trend. The chart below shows the year-over-year earnings and revenue growth for the second quarter relative to the preceding four periods and expectations for the following three periods5:
The +8.4% second quarter expected earnings growth rate is the highest we’ve seen in almost two years. The second factor is the favorable development on the revisions front, with estimates for Q2 holding up far better than other recent periods. In the three-month period from the start of the quarter through June 30, Q2 estimates for the S&P 500 index fell the least relative to comparable periods of other recent quarters. The chart below gives us a good visual sense of this favorable revisions trend.
A final factor to watch is the outsized role Technology stocks continue to play, particularly the ‘Magnificent 7 Stocks.’ Total Tech sector earnings are expected to be up +15.7% from the same period last year on +9.6% higher revenues. Had it not been for the Tech sector’s strong growth, Q2 earnings for the rest of the index would be up only +4.8% (vs. +8.4% otherwise). For the Mag 7 stocks, Q2 earnings are expected to be up +25.5% on +13.2% higher revenues.
Building Your Ultimate Retirement – The influential events listed above can affect the economy in different ways. However, there are things you can do now to protect your investments and create a retirement portfolio that meets your financial goals. I recommend reading our guide, 7 Secrets to Building the Ultimate DIY Retirement Portfolio6, which provides a step-by-step blueprint of our customized investing process to potentially help you build a sound retirement portfolio of your own and pursue long-term investing success.
If you have $500,000 or more to invest, get this guide to learn our ideas on the step-by-step process of building and maintaining a retirement portfolio that will potentially help you reach your goals and enjoy a secure retirement.
Disclosure
2 Fred Economic Data. July 5, 2024. https://fred.stlouisfed.org/series/PAYEMS#
3 ZIM may amend or rescind the “7 Secrets to Building the Ultimate DIY Retirement Portfolio” guide for any reason and at ZIM’s discretion.
4 US News. July 9, 2024. https://www.usnews.com/news/economy/articles/2024-07-09/powell-tells-congress-inflation-is-coming-under-control-is-it-enough-to-calm-angry-voters
5 Zacks.com. https://www.zacks.com/commentary/2297407/3-key-things-to-know-about-the-q2-earnings-season
6 ZIM may amend or rescind the “7 Secrets to Building the Ultimate DIY Retirement Portfolio” guide for any reason and at ZIM’s discretion.
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