The May employment number caught market participants off guard last week, and the odds for a June rate hike look very slim. The weak employment number came after some strong economic data early in the week, with consumer spending and the manufacturing purchasing managers index exceeding expectations. Only 38,000 jobs were added in May versus an expected 160,000. The unemployment rate declined to 4.7% because 500,000 less people were looking for a job. At this point, I don't expect the Fed to increase rates in June, but a July increase is still a possibility.
Over the next few weeks keep an eye on these five items to see if a more definitive market trend will be developed:
- Janet Yellen's June 6 speech – these will be the first comments on the May employment report
- Results from the California Democratic primary – a Bernie Sanders win will keep uncertainty high
- FOMC statement and future guidance with the dots
- Brexit vote on June 23 – the latest polls from this weekend show Brexit favored
- June employment number - needs to show a rebound or economic momentum may be in question
I expect the market to remain range-bound, but I am growing more concerned about the fragility of economic growth and stock market momentum.
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