A Resilient Labor Market Sets the Tone
The latest data continues to point to a labor market that remains firm. U.S. job openings unexpectedly climbed to 7.59 million in May, the highest level seen in roughly two years and well above what economists had been forecasting. This signals that labor demand remains resilient. Hiring and the quits rate both held steady, supporting the view that the job market is currently balanced rather than overheated. One notable detail: workers are still showing little urgency to change jobs, which fits the picture of a stable but not frenzied employment environment.
This JOLTS report sets the stage for the closely watched jobs report due Thursday, where economists expect payroll growth to slow to around 114,000 after May's stronger-than-expected gain. For investors, the labor market remains a key piece of the Federal Reserve's puzzle. Policymakers are weighing resilient employment against still-elevated inflation as they determine the path forward for interest rates.
A Powerful First Half for Stocks
Stocks wrapped up a strong first half of the year. The Dow posted its best first-half performance since 2021, gaining more than 8%. The Russell 2000 surged 20% over the same period, marking its strongest first six months since 1991.
These gains came after a volatile start to the year. Markets had to navigate the conflict involving Iran, swings in oil prices, and lingering questions about the durability of the AI trade. As those concerns eased in the second quarter, investors broadened their focus beyond the mega-cap technology names. That broadening helped fuel a powerful rally across the wider market rather than leaving gains concentrated in a handful of stocks.
Semiconductors Lead with a Record Quarter
Chips were a standout. Semiconductors had their best quarter ever, with the SOX index up more than 80%, and the related ETF up 110% year-to-date. If the chip names can hold onto that gain through December, it would mark the best year for the sector since the dot-com boom of 1999. These were among the most striking developments at the close of the quarter, the first half of the year, and the month — all of which converged in this single trading session.
Consumer Confidence Ticks Up, But With Caveats
Additional data showed consumer confidence improving in June, though the picture was mixed. People appeared more disappointed with the economy than expected. The improvement in sentiment was largely attributed to falling gasoline prices, which are offering some relief. However, that relief was offset by worries about the labor market. Views of jobs worsened, as more consumers reported finding work increasingly harder to get.
A key indicator worth tracking here is inflation expectations. Those expectations have been holding steady, which suggests consumers anticipate inflation moving higher rather than lower. That dynamic matters because steady-to-rising inflation expectations could push the Fed into a more hawkish stance.
The Yen Hits a 40-Year Low
In currency markets, the Japanese yen fell to a 40-year low, breaking through 162 versus the U.S. dollar and leaving traders on intervention watch. Officials have previously stepped in to prop up the currency around the 160 level, and the government spent $72 billion defending the yen back in April. The market is now wondering where the next "line in the sand" will be drawn. Some strategists point to 163 as the next level to watch.
An important nuance is that the carry trade gets fueled by a weaker yen, so a sliding currency is not uniformly negative for all market participants. Because of this, the intervention rhetoric and the "jawboning" from officials become very important to monitor for these markets.
What to Watch Next
Several events are on the radar heading into the following session:
- ADP employment report: This serves as an early preview to the BLS data due Thursday. Economists expect the ADP national employment report to show an increase of about 110,000 private-sector jobs, slightly below the prior month, when companies added 122,000 workers. It could help confirm what the official Thursday jobs report shows.
- ISM manufacturing PMIs: The prices-paid component is the key item to watch here, as it provides an indication of inflation.
- Mortgage applications: These will offer a pulse check on the housing market given the current level of interest rates.
- Central bank commentary from Sintra, Portugal: Markets will be listening for what is said — or not said — about forward guidance. Notably, the official in question has made clear that if he doesn't have anything worth saying, he won't speak at all.
Taken together, the session captured a market closing out a strong first half on firm footing, even as crosscurrents in consumer sentiment, inflation expectations, and global currency markets keep the outlook for Fed policy and beyond far from settled.
