Key points:

  • Weak data on the US labor market has increased expectations of the Fed cutting interest rates.
  • The technology sector and mega-cap stocks were the best performers.
  • The banking sector declined ahead of the corporate earnings season.

US stock indices showed positive dynamics on Friday, July 5th. The tech-heavy Nasdaq index and the benchmark S&P 500 index hit record highs.

The growth was caused by the publication of data on the US labor market, which turned out to be weaker than expected. This strengthened forecasts that the Federal Reserve could cut interest rates as early as September.

The Dow Jones Industrial Average rose 67.87 points, or 0.17%, to close at 39,375.87. The S&P 500 added 30.17 points, or 0.54%, to 5,567.19. The Nasdaq Composite rose 164.46 points, or 0.90%, to 18,352.76. At the end of the week, the S&P 500 showed an increase of 1.95%, the Nasdaq – by 3.5%, and the Dow – by 0.66%.

The banking sector is in the red

The rise of US markets on Friday, July 5, was driven by a rally in mega-cap stocks and the technology sector. Microsoft shares rose nearly 1.5% to hit a new all-time high, while Meta Platforms also closed at a record high, up about 5.9%.

The S&P 500 communications services sector was the best performer, reaching its highest level since 2000. At the same time, the Russell 2000 Small Cap Index fell 0.95% for the week.

The largest US banks showed declines ahead of the start of the second quarter corporate reporting season, which starts next Friday. Concerns about higher interest rates and economic uncertainty weighed on banks’ profit forecasts. Shares of Bank of America, Wells Fargo and JPMorgan Chase fell 1.2% to 1.7%, dragging the S&P 500 bank index down 1.6%.

Trading volume on US exchanges was 9.73 billion shares, below the average of 11.57 billion over the last 20 trading days.

Current unemployment data in the US

The U.S. Labor Department reported that national job growth slowed slightly in June and the unemployment rate rose to its highest level in 2 1/2 years.

The data could prompt the Federal Reserve to more actively discuss the possibility of cutting interest rates at its meeting later this month. According to the FedWatch Tool CME, the likelihood of the Fed easing monetary policy in September increased to 79% from 66% observed before the data was published.

Financial experts believe that if we see a continuation of this trend next month, without an acceleration in hourly wage growth, then traders can expect a rate cut in September, followed by another in December.

Data released earlier in the previous week also pointed to a slowdown in the US economy. This, in turn, was one of the factors that contributed to the S&P 500 and Nasdaq indices reaching record closing highs during the holiday-shortened trading session on Wednesday.