'American workers are not getting a raise,' says J.P. Morgan Asset Management strategist
Extreme heat hits New York City's Financial District ahead of the July 4 holiday.
Stocks ended mixed Thursday after a tepid jobs report for June reflected only modest hiring and an OK U.S. economy.
The Dow Jones Industrial Average DJIA surged to an intraday and closing record - it's 20th such record finish of this year. Yet volatility in semiconductor and memory stocks weighed down the S&P 500 SPX and Nasdaq Composite COMP, as did a mixed performance from the "Magnificent Seven."
Sessions ahead of a long holiday weekend can be light on liquidity, which can exacerbate market moves. But the narrative in markets on Thursday suggested jobs data could start playing a bigger role for the rest of 2026.
That's mainly because oil's (CL00) retreat below $70 a barrel and wages that look fairly weak have Wall Street skeptical about the need for Federal Reserve interest-rate hikes to tame inflation. One closely watched barometer of price pressures eclipsed a 4% annual rate in May, but that could be near a peak.
"We have a healthy tortoise of an economy," said David Kelly, J.P. Morgan Asset Management's chief global strategist, on Thursday after the jobs report. "It's a slow-hire, slow-fire and slow-growth economy."
That isn't a backdrop where the Fed will need to hike rates, Kelly added. There will be "tightening noises," he said, but with no pickup in wages and "Teflon" inflation in play, he believes the Fed will stay on hold this year.
Treasury yields were fairly steady Thursday, with the policy-sensitive 2-year rate BX:TMUBMUSD02Y at 4.13%, according to FactSet. That's still above the 3.75% upper limit of the Fed's policy range, but off the 2-year's recent 4.23% high.
A higher 2-year Treasury yield suggests investors aren't ready to give up on the possibility of rate hikes. But there's also been a slight shift back toward gauging the room for rate cuts.
2026's second half
Outside of a booming stock market and America's wealthiest households, many families have been feeling the pinch of higher borrowing costs and rising inflation.
Younger shoppers hunting for bargains have boosted earnings of discount chains like Walmart $(WMT)$, Ross $(ROST)$ and other retailers, while the roaring bull market has the wealthy focused on "unapologetic luxury."
The S&P 500 was up 9.3% on the year through Thursday at 7,483, putting a rare fourth year of double-digit returns in play if it ends 2026 above 7,530, according to Goldman Sachs.
"There's no doubt the wealth effect is working," said Brad Conger, chief investment officer at Hirtle & Co., in a phone interview. It just isn't working for everyone.
That's why Conger's team likes longer-duration 10-year Treasurys BX:TMUBMUSD10Y at Thursday's 4.47% yields, and has been overweight consumer staples, healthcare and luxury goods in equities.
"We like bonds because high real rates and low real wages are punitive for the economy," he said. The backdrop has Conger's team underweight on the Magnificent Seven and semiconductors, which have benefitted from the artificial-intelligence spending blitz. Higher debt levels and borrowing costs could weigh on the historic AI-infrastructure buildout, and keep a lid on those stocks' returns.
Still, Conger's team has been leaning into spending by the wealthy, especially with "tech bros" expected to splurge on expensive watches and other luxury items following the AI IPO wave started by SpaceX.
The AI+ rally
Should inflation cool in the coming months, the labor market is likely to come back into focus for the Fed.
With that backdrop, Jason Pride, chief of investment strategy and research at Glenmede, thinks the Fed could still cut rates in November or December, even if that isn't a consensus view.
While the labor market "isn't falling apart," Pride said, he also views the situation as one "where the Fed can't sit back and relax." Looking ahead to the next couple of months, the Fed is likely to be more worried about the jobs market than inflation, he added.
That means investors should be in "continuous risk-management" mode right now, trimming away at winners in stocks and rebalancing portfolios back to their longer-term stock and bond targets, Pride said.
He expects the array of industries and companies benefitting from the AI boom to continue broadening out in the months ahead. Yet it's hard to see the spoils of an AI-driven economy trickling down to everyone.
"American workers aren't getting a raise," Kelly at J.P. Morgan noted. That's either because they aren't asking for one, or they aren't getting it from their employers, he said.
-Joy Wiltermuth
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(END) Dow Jones Newswires
July 02, 2026 18:38 ET (22:38 GMT)
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