S&P and NASDAQ hit record highs, and economic indicators support interest rate cuts

Fresh economic data supporting the scenario where the US Federal Reserve (Fed) will begin monetary easing was announced, and the S&P 500 (SP500) index, which is the benchmark for Wall Street, hit a record high in intraday and daytime history on Wednesday.

Ahead of the Independence Day holiday, the stock market closes at 13:00 Eastern Standard Time and the bond market closes at 14:00 Eastern Standard Time.

S&P (SP500) rose 0.40% to a record high of 5,530.85 points. The Nasdaq Composite Stock Price Index (COMP: IND), which has a high high-tech stock ratio, was in the 18,100 point range for the first time in history, and rose 0.76% to 18,166.53 points.

The Dow (DJI) reversed the trend and fell 0.09% to 39,294.85 points. Of the 11 S&P sectors, 7 fell.

Of S&P's 11 sectors, 7 were positive.

There were plenty of economic indicators, but three indicators in particular caught my eye. Before the opening, ADP Research Institute announced that job creation for private sector employees had been slowing for 3 consecutive months, and that it was 150,000 in June compared to 157,000 in May. Economists expected an increase of 163,000 people.

Immediately after the ADP announcement, the U.S. Department of Labor announced that the number of new unemployment insurance applicants in the past week had risen to 238,000. What is more remarkable, however, is that the number of employment insurance applications has increased for 9 consecutive weeks, and has continued to move around the high level since 2021/11.

Insured unemployment insurance, also known as continuing applications, is the number of people who have already applied for their first unemployment benefit and then applied for another week to continue receiving benefits.

One of the main reasons why the Fed has stabilized interest rates to a high level for the first time in 23 years and has not gained enough confidence to implement monetary easing is the high resilience of the labor market and the low unemployment rate along with the inflation rate. However, today's data shows signs of a rift in this area.

Today's third notable economic indicator was from the Institute for Supply Management (ISM). According to ISM, the US service sector shrunk to 48.8% in June, the lowest level in the past 4 years, which is a sure sign that the economy is cooling down.

“What became bright material in the ISM service sector report is prices, which have been moving in almost the same trend as pre-COVID standards since last summer. This is a good sign for the Fed, which is concerned about tenacious service inflation,” Parker Ross, global chief economist at Arch Capital Group, said on X (old Twitter).

“The market reaction to the shockingly weak ISM service sentiment report has been very mild. In past examples where headline figures fell far below expectations, the median daily movement of the S&P 500 (SP500) rose or fell 1.1%,” the Bespoke Investment Group pointed out on X.

The minutes of the June regular board meeting of the Federal Reserve will be announced later.

Looking at the bond market, US bond yields declined because market participants bought and collected bonds in response to many economic indicators. The 30-year bond yield (US30Y) fell 7 basis points to 4.54%, and the 10-year bond yield (US10Y) fell 6 basis points to 4.37%. The 2-year bond yield (US2Y), which is shorter and has a higher interest rate sensitivity, fell 4 basis points to 4.71%.