As we kick off a new trading week, the major US stock averages are higher by at least 0.5% point.
Now the US job market held up in the first half of the year, but so much for the initially reported Q2 job gains.
Friday's jobs report showed a gain of just 730, with steep downward revisions of 258,000 for June and May.
Also, the unemployment rate for the latest month ticking up to 4.2%.
Economists are Raising concerns about stagflation and joining me on this Monday morning to weigh in is Chris Versace, CIO of Tomatic Research.
Chris, great to have you here.
Thank you for joining me.
Sure thing, Remy.
Happy to be here.
Well, first and foremost, let's talk about that jobs report that came out on Friday.
What was your initial take?
You know, I was disappointed that the number of overall jobs was a little weaker than expected, especially after the ADP report that was better than expected.
So but we always Remember that there's different puts and takes to these reports.
The monthly employment report also shows the private sector as well as the public sector, so we have to really triangulate around it, but it was those big revisions that I think caught everybody by surprise, wiping out, you know, not just a few, you know, 1000 jobs, but over 200,000 jobs really raised questions about the true speed, you know, of the economy.
Yeah, and we got some key economic data last week, not just jobs figures, including unemployment, non-farm payrolls, ADP, but we also got PCE and GDP figures.
So in terms of where the economy is right now, what do you think this means for the Federal Reserve moving?
Well, I think Fed Chair Powell kind of laid it out pretty well, right?
You know, they are starting to see some of those concerns about tariffs, you know, cooking up the heat, if you will, on inflation.
We kind of saw a little bit of that as well in the manufacturing PMI report that we got on Friday.
I really want to see what we get on the pricing component front tomorrow with the service PMI for July.
That's about 80 85% of GDP.
So to me that's, you know, the manufacturing numbers are a little concerning.
The service number is going to be a lot more important, not just about inflation though, what they say about that aspect of the economy, what the new orders tell us about the back half of the quarter, and just another look on job creation.
Yeah, and it's also been very heavy on earnings, a key, a bunch of key reports coming out this week that we're paying attention to, but I do want to get your take on the so-called Fantastic Four of the Mag 7 names that we saw.
So what did you make of those reports that came out and how is the state of the AI trade right now?
So I think the AI trade is very much alive and well.
We're of course talking about, you know, robust chip demand.
We're talking about continued building.
That's going to bode very well for other companies in that food chain, whether it's United Rentals, Volkan Materials, or even Eaton because of the growing electrical pain point that we have.
But you know, I think on the earnings front, you know, clearly Microsoft and Meta were better.
They raised their cap backs.
Google raised their cap backs.
So again, all good things for the AI trade.
What is a little bothersome to me though is when we step back, you know, June quarter earnings a little better than expected, but we continue to see earnings expectations for the S&P 500 for the second half of the year, the rate of growth come down.
So back in March, around 14%, ticked two weeks it was around 8.5% a week ago, 7.9% as of Friday, 6.8%.
So that's not really conducive for the market moving sustainably higher in the near term.
Yeah, and one area I do want to get your take on are tariffs here.
So we've seen the goalposts move, but a lot of big deals got done whether we're talking about Japan, the EU, South Korea, or other nations.
But in terms of the impact on the American consumer, what does this mean and when do you expect some of those effects to start showing up?
So I think the way to think about it is, yes, we've gotten some progress and you know the goalposts, as you said, have moved around.
Some of the rates are a little closer to their original rates, but at the end of the day, you know, compared to where we were in January, right, there are incrementally higher tariff rates, which means there will be some inflation that has to bubble through the system, and I think we're starting to see that happen, you know, we saw it in the last 2 months, 3 months actually of the PMI reports.
Those tend to lead a little bit.
I think we'll start seeing it flow through to the consumer.
We have seen some companies try to.
Absorb the impact of tariffs, but we're also seeing those earnings numbers come down like I said.
So it's kind of a bit of a balance.
I suspect we're going to see more of it come through though.
And finally, Chris, before I let you go to medical research, you focus on different themes.
So how are they playing out so far in 2025?
Well, as you can imagine, the AI theme is doing extremely well.
Our energy pain point theme, which kind of ties into AI a little bit, is doing extremely well.
The one.
Are the two areas actually we're seeing some challenges.
One would be on the cash strap consumer because consumers are trading down, but we've seen companies like Costco unsurprisingly pull back despite the positive data points we get.
The other one is the luxury buying boom, which again I think is not that much of a surprise just given we're hearing that you know more wealthier individuals are shopping at Walmart and Costco, even they are trading down, Remy.
Well, before I let you go, since we have about 60 seconds here, here we are on Monday morning, we're looking at the S&P 500 right below the 6300 level.
Are there any key levels or moving averages you're watching?
You know, just I would say that in the near term, you know, there's a couple of things we want to watch, especially as the VIX is a little more elevated than it was, kind of the market coming off of that.
Complacency.
I think we're going to really want to watch the 50 day moving average and the 200 day moving average.
To the extent that we see things pull back, that could be a nice opportunity to pick some things up.
But again, that's for the market, stocks, and individual basis.
OK, Chris, always great having you here at the New York Stock Exchange in person.
Thank you so much for all of your insight.
Thanks, Rey.
Thank you.
