US and China Meet, Solid Job Growth, Subdued Inflation, and Next Week’s Fed Meeting
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Weekly Market Recap for June 13th
This week, stocks traded higher as the S&P 500 is now less than -2% below its all-time high from February 19th. There was a hint of underlying rotation underneath the surface, with the Russell 2000 gaining +2% while the momentum factor returned +0.3%. The high beta factor gained nearly +3% as it benefited from its semiconductor overweight, and growth and value produced similar returns. Energy was the top-performing sector, as oil rallied by more than 7%, with technology, consumer discretionary, and health care also outperforming the index. In the credit market, long-duration Treasury and corporate bonds outperformed as yields declined due to a cooler-than-expected inflation report and a strong 30-year Treasury bond auction. Volatility continued to decline in both the stock and credit markets, as evidenced by the VIX and MOVE indices, which both decreased. The U.S. dollar weakened to a new three-year low, while gold rebounded from early losses to end the week modestly higher.
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Key Takeaways
#1 - US and China Continue Trade Negotiations
The US and China held a second round of meetings this week following accusations from both sides that the other had failed to honor the trade truce established in Geneva last month. The outcome of the meeting was a loosely defined "framework" that lacks meaningful details.
Implication: The agreement serves as a tactical pause aimed at stabilizing the current truce rather than a step toward resolving the tensions between the two nations.
#2 - US Adds 139k Jobs in May
The U.S. added 139,000 jobs in May, slightly above the 130,000 forecast. Healthcare and Leisure & Hospitality led the job gains, while the Federal Government, Temporary Help, and Manufacturing sectors declined. Although May’s gains were solid, March and April were revised lower by a total of -95,000. Unemployment remained steady at 4.2%, staying within the narrow 4% to 4.2% range since May 2024. One factor keeping the labor market tight and unemployment low is the participation rate, particularly among the 55+ age group, which continues to fall.
Implication: The data suggests the labor market is cooling but resilient, with steady job growth despite ongoing tariff uncertainty. The report was seen as a “Goldilocks” outcome: not too strong to trigger rate hikes, but strong enough to ease recession fears.
Unemployment Holds Steady in the Low 4% Range
Labor Participation Rate (55 Years and Over) Remains Near Post-Pandemic Low
#3 - Inflation Remains Subdued
Inflation remained subdued in May, easing concerns about a tariff-driven spike. Headline CPI (Consumer Price Index) rose by +0.1% m/m in May, down from April’s +0.2%. Core CPI also rose by +0.1% m/m, a decrease from April’s +0.2% and below the +0.3% estimate. Likewise, headline and core PPI (Producer Price Index) both rose +0.1% m/m, below expectations. The two reports were closely watched due to concerns about the inflationary impact of tariffs; however, the data suggest that tariffs have had a limited impact. Economists noted the May report may not fully reflect the implications of tariffs, with some expecting stronger effects in the coming months.
Implication: The reports suggest disinflationary pressures remain in place, with companies potentially choosing to absorb higher costs to stay competitive.
Headline and Core CPI Below Consensus in May
Core PPI Remains Low Despite Tariffs
#4 - June Fed Meeting
The Fed holds its June FOMC meeting next week. The central bank continues to urge patience as it balances inflation and the labor market. With the May jobs and inflation reports pointing to a solid labor market and subdued inflation, the market expects the Fed to hold interest rates steady in June and July. Investors will be focused on the updated Summary of Economic Projections for clues about the Fed’s outlook on future rate cuts.
Implication: The Fed is paralyzed as it worries about the inflationary impact of tariffs. The risk is that the Fed is overemphasizing inflation risk and underestimating the impact of higher rates.
#5 - Initial Jobless Claims Drift Higher
Initial jobless claims continue to drift higher, with the 4-week moving average near the upper end of a 2-year range. While initial claims remain low by historical standards, they are slowly adding up. The number of continued jobless claims is at a 3.5-year high, signaling a softer labor market and a "slow-to-hire" mentality.
Implication: The labor market remains solid, but jobless claims suggest it is gradually losing steam. It does not appear to be collapsing, but it feels stagnant (low hiring, low firing).
Initial Jobless Claims Continue to Move Higher
Continuing Jobless Claims Rise to 3.5-Year High
Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.
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