The soft eased concerns the Fed will hike rates. The Bureau of Labor Statistics reported 57K in new nonfarm payrolls in June, much less than the 114K forecast, and trimmed the May number from 179K to 129K. There was a surprising weakness in leisure and hospitality, which was expected to rise on the World Cup influx. On a 3-month average, a better number given the noise in the monthly numbers, stands at 111K in the BLS data, pointing to a resilient job market.
Yesterday, Fed Chair Kevin Warsh said that risks have come down, bringing down rates and dropping bets for a July rate increase from 31% to less than 19% by the . The softer-than-expected job data for June builds the case that the Fed will do nothing for now, waiting to see if the energy shock from the Iran war is truly behind us. On that front, has dropped to $67.50/bbl, the lowest since the first week of the Iran war. is down 3% today. The US 2-year yield is down 5bps to 4.12% today. The is down less than 2bps to 4.46%, and the is flat.
Stocks jumped on the news initially, but after the first half hour started to fade as the tech weakness continues. Overall tech is down 2.1% today, down 5.1% for the trailing month but still up 28.9% YTD. There are concerns that the high memory prices will bring AI solutions that need less memory, and that the data center build-out may not all get built in the end. And that token pricing of AI software will push users to lower-cost versions, especially Chinese offerings, and is bringing increased caution regarding the enthusiasm for all things AI.
I do not want investors to worry about the selloff in AI and data center-related stocks. In my opinion, the big news is that the order backlogs for AI and data center-related companies surged to nearly a 3-year backlog, so the data center boom is expected to persist at least through 2029.
We’re having a general reversion-to-the-mean day. The is only 1.7% from its all-time high, and the earnings season approaches, which should be every bit as strong at 1Q26, with mid-20 % y-o-y earnings gains. The trend remains positive.