The S&P 500 kicked off the second half of 2024 with its best weekly performance since late April. The advance was driven by labor market data that has supported the case for Federal Reserve interest rate cuts. The S&P is now within striking distance of the 5600 level and is close to topping the year end target of several brokerages that have scrambled to keep up with the bull run. For the week, the S&P added 2%, while the Nasdaq Composite gained 3.5%.

New labor data added further evidence that the US jobs market is indeed slowing down. Companies hired workers at a more moderate pace in June and wage growth cooled as recurring claims for unemployment benefits rose for a ninth straight week, the longest stretch since 2018. A report published Wednesday showed that the US services sector contracted last month at the fastest pace in four years, another sign that the economy is losing steam.

The puzzling question on everyone’s mind is why S&P and Nasdaq are hitting new highs amidst a weakening economy?

Future Wealth’s View

One of the cardinal sins on Wall Street is fighting the tape i.e betting against the market. The road is littered with those who took positions calling for the end of the bull market only to see it go up well past their targets. The most recent victim was JP Morgan’s Marko Kalanovic – the man dubbed “Half-Man, Half-God” by the financial press over the years for his prowess at predicting market moves, was out of a job at JPMorgan on Wednesday this week. Kolanovic called for a recession that hasn’t materialized, and largely missed the artificial intelligence boom that has propelled technology stocks for the past 18 months. He, instead, called for the S&P to drop by 24% by year end. The S&P 500 is up 17.4%  year to date. But, Marko is not alone. Morgan Stanley’s Mike Wilson, one of Wall Street’s most prominent bears, dropped his bet against the S&P 500 in May. Morgan Stanley sent a memo announcing that he was leaving his post as chair of the bank’s Global Investment Committee.

The challenge for all investors and financial advisors is to be flexible and adjust their investment thesis when macroeconomic conditions shift. Taking a strong position and sticking with it is admirable but losing money in client portfolios is deplorable.

As the saying goes “Humility isn’t denying your strengths; it’s being honest about your weaknesses.”