Fed Rate Cut Expectations Rise Amid Mixed Labor Market Data

Let's get to the big story breakdown.

Fed rate cut expectations rising after last week's US jobs report.

Non-farm payrolls came in below estimates and unemployment rose, but the downward payrolls revisions came in at $-258000 for the month of June as well as May.

And at the same time last week saw the highest volume for M&A among US companies since 2021.

The deals included the biggest of the year so far.

Union Pacific's $71.5 billion acquisition of rival Norfolk.

Also last week, Palo Alto Networks completed a $25 billion deal for Israeli cybersecurity firm Cyber Ark and oilfield service provider Baker Hughes struck a $13 billion deal with Chart Industries, adding to the buzz, the public debut of software company Figma on Thursday with its share prices more than tripling, helping to revive a lackluster IPO market.

Well, joining me here at the New York Stock Exchange this morning is Michael Ryanking, senior market strategist at the New York Stock Exchange.

Michael, what a morning.

Good.

Morning.

Thank you so much for joining me.

Good morning.

Thanks for having me back.

Well, since you were last year, a lot has changed, especially the labor market data.

So where do you stand on the US economy as well as the Fed rate outlook?

Yeah, so I mean, you know, last week's labor market data, the monthly number was a little bit light, but the big, you know, kind of the big topic of conversation has been the very large negative revisions that we saw to the previous two months, which suggests that the labor market.

Isn't quite as strong as you know, kind of we had previously thought.

Now, you know, that being said, right, those numbers are suggesting that hiring has slowed very significantly, uh which which makes sense given the kind of uncertainty in the environment, but we're we're not seeing kind of a big A wave of layoffs, right, if you look at dislocations, um, you know, in the Jolt's jobs numbers, right, you know, those, those dislocations are still in the low 1% level in terms of separations and and that is historically low.

So I think the labor market is not quite as, you know, kind of solid as we had previously thought, but I, you know, I don't know that it necessarily. right that it should be sending off major, major alarm bells and of course there's been a lot of speculation about what the Fed's next move will be, but when we look at Fed funds' futures, we are seeing expectations of a Fed rate cut in September rising.

So what are you watching?

Yes, so I mean we've definitely seen a very significant swing in terms of You know, kind of market expectations kind of on the back of kind of Chair Powell's testimony last week or you know kind of press conference, right, we had seen, you know, kind of those probabilities move in a very in a negative direction as his commentary was pretty hawkish, suggesting that he would want to see, you know, kind of more data before he was ready to move, you know, the question you know.

Really is whether or not you know if they had had Friday's data in advance of that meeting, would that have changed anybody's kind of vantage point, you know, since then we've, you know, last night we heard from Mary Daly, who suggested that you know she was willing to wait one meeting, but you know the time is is approaching, you know, for them to need to move right so.

You know, at this point we're now looking at markets pricing in about a 90% probability of a cut in September.

You know, kind of what's even more interesting is that we're now looking at potentially 2 to 3 cuts by the end of the year, which is, you know, up from 1 to 2 heading into kind of last week.

And I do want to shift our focus on to what we've been seeing here on the trading floor.

So last week we had Sigma debut and what an IPO that was.

So in addition to that, there are also other deals getting done in M&A as well.

So what does this tell you?

Yes, so I mean you point out two things that are, I think, really important and Drivers of what people had really expected to see kind of heading into this new year with the administration, right, so you know, as you pointed out last week was the busiest week of M&A transactions, you know, kind of in the US I think going back to, you know, for at least 4 or 5 years, I forget the exact date, um.

But you know that was one of the things that market participants had expected with the kind of the shift in the regulatory environment, right?

That's also suggesting that kind of corporations are getting a little bit more confident in how things look going forward, right?

And then the other kind of aspect of that and something that we've seen in a very we were kind of had front row seats here at the New York Stock Exchange floor was you know kind of the FigGMA IPO right that had a kind of was really well received in the secondary market.

Um, and we continue to see kind of that market remains open, you know, kind of companies are are upsizing deals, you know, kind of being able to price them very favorably for the company, and then we're seeing them trade very, very well in the secondary market, right?

So that continues to suggest that we're going to, you know, continue to see that momentum pick up into the end of the year.

And finally, Michael, we have about 60 seconds here, but we are here in the aftermath of some of the big names in the mag 7 reporting their earnings.

So were there any yellow flags from the results?

Look, I think you know the the biggest green flag, so to speak, you know, has come from kind of the mega cap tech names, right, and that the kind of strength and the driver know that AI has become, you know, kind of not, you know, not only for these companies but you kind of more.

Broadly for kind of the economy, right, we continue to see very, very strong results, you know, kind of from, you know, Alphabet a couple of weeks ago, Meta last week, Microsoft, right, Amazon's numbers were a little bit more mixed, but it was hard to call them negative numbers.

It's just in the, you know, kind of in the aftermath of how strong and kind of the other numbers that we've seen where you kind of that stock got hit a little bit more, you know, but we continue to see those companies.

Kind of ramping up spending, you kind of balance here overnight, another kind of blowout quarter with that stock trading to a new all-time high, right?

So we're starting to see not only the spending in kind of AI, but we're starting to see the implementation kind of being felt more and that's going to be a driver as we move forward.

OK, Michael, always great having you here.

Thank you so much for weighing in and as always, thank you for sharing your perspective.

Thanks for having me.

See you next week.