Wednesday Markets Update: New Highs and Economic Insights

The S&P 500 and Nasdaq Composite indices have once again reached new highs. On Tuesday, the S&P 500 closed at 5,509.01, marking its first-ever close above the 5,500 threshold with a 0.62% gain.

This surge was largely driven by a 10% increase in Tesla shares after the company reported better-than-expected second-quarter deliveries. Similarly, the Nasdaq Composite rose by 0.84%, setting a new record. The Dow Jones Industrial Average also saw gains, closing 0.41% higher at 39,331.85.

Inflation and Interest Rates

Despite the positive market performance, the Federal Reserve is not yet ready to cut interest rates.

Federal Reserve Chair Jerome Powell expressed satisfaction with the progress on inflation but indicated that more work is needed before any rate cuts are considered. Speaking at a forum attended by European Central Bank President Christine Lagarde and Brazil Central Bank Governor Roberto Campos Neto, Powell noted that recent inflation readings show progress towards disinflation. The personal consumption expenditures price index, a key measure of inflation, rose at a 2.6% annual pace in May, down from around 4% a year ago.

Premarket movers:

Private Payrolls Show Slowdown

A recent report from ADP suggests a potential slowdown in the U.S. labor market. In June, private payroll growth edged lower, with companies adding 150,000 jobs. This figure is below both the revised 157,000 jobs added in May and the Dow Jones consensus estimate of 160,000. It also marks the lowest monthly gain since January. The leisure and hospitality sector led the way, adding 63,000 jobs. Other sectors with gains included construction (27,000), professional and business services (25,000), other services (16,000), and trade, transportation, and utilities (15,000).

Conversely, some sectors experienced job losses. Natural resources and mining lost 8,000 jobs, manufacturing dropped by 5,000, and the information sector was down by 3,000. ADP’s chief economist, Nela Richardson, noted that while job growth remains solid, it is not broad-based. Without the hiring rebound in leisure and hospitality, June would have been a downbeat month for job growth.

The report also highlighted trends in wage growth. For workers who remained in their jobs, wages increased by 4.9% year-over-year, marking the smallest rise since August 2021. Those who switched jobs saw a 7.7% increase, though this figure has also been trending downward. Mid-sized companies, employing between 50 and 499 workers, contributed the most to job creation in June, adding 88,000 jobs. Small businesses added just 5,000 jobs. Geographically, the South led the way with 80,000 new jobs, accounting for more than half of the total job growth.

The ADP report serves as a precursor to the more comprehensive nonfarm payrolls report from the Labor Department, which is scheduled for release on Friday. This report is expected to show an addition of 200,000 jobs for June, following a gain of 272,000 in May. Historically, there have been discrepancies between ADP’s figures and those reported by the Bureau of Labor Statistics (BLS), with ADP often undershooting the BLS count. For instance, in May, the BLS reported a rise of 229,000 private payrolls, significantly higher than ADP’s estimate of 157,000.

FDA Approves New Eli Lilly’s Alzheimer’s Drug

The Food and Drug Administration (FDA) has approved Eli Lilly's drug donanemab, which will be marketed under the name Kisunla. This approval is for adults with early symptomatic Alzheimer’s disease. The decision follows a recommendation from an FDA advisory panel, which concluded that the benefits of the treatment outweigh its risks. The approval comes at a critical time, as the number of Americans living with Alzheimer’s is expected to nearly double from 7 million to 13 million by 2050.