Dear trader, dear stock market friends.
The first week of July brought a fresh tailwind for the stock markets. The Dow Jones Industrial Average proved robust, even if it fell just short of a new record high for the time being.
Non-farm payrolls surprise positively
The highlight of the week was the US labor market report for the month of June. The latest figures from Thursday were significantly better than expected: 147,000 new non-farm jobs were created. Economists had expected significantly fewer. At the same time, the unemployment rate fell from 4.2% to 4.1%, a sign of continued labor market momentum. The robust non-farm payrolls provided relief on the stock markets and dampened concerns of an abrupt economic slowdown for the time being.
The Dow Jones gained +0.77% or 344 points on Thursday ahead of the extended weekend (due to Independence Day on Friday, July 4), while the S&P 500 rose +0.83% and the Nasdaq +1.02%. With this jump, the Dow closed only 186 points below its all-time high. The S&P 500 and the Nasdaq 100 even reached new record highs.
Labor market cools moderately in the medium term
Even though the NRP data was better than expected, it is worth taking a look behind the headlines: Not all the details of the labor market report were encouraging. In particular, employment growth in the private sector was comparatively weak; a warning sign that companies are becoming less willing to hire. In addition, job growth was not spread across all sectors, meaning that some industries hardly created any new jobs. There are also signs of a moderate slowdown in the labor market in the medium term: the average duration of unemployment increased and the proportion of long-term unemployed (jobless for more than 27 weeks) rose to its highest level in almost three years. Company representatives report that they are becoming more cautious about hiring new staff.
The very robust job recovery to date could therefore cool down somewhat in the coming months instead of continuing unabated.
In fact, some economists warn against looking at the strong June figures in isolation. Declining consumer spending and gloomy consumer sentiment indicate that demand could weaken over the course of the year. If this trend continues, it could also affect the labor market with a delay and cause a gradual slowdown.
Interest rate cut postponed
The surprisingly strong labor market data have a direct impact on expectations for US monetary policy. Just a few weeks ago, some market participants were speculating on an initial interest rate cut in the summer due to the economic uncertainties.
This scenario has now been pushed back significantly. Following Thursday's non-farm payrolls, the FedWatch tool of the CME futures exchange now only prices in a 5% probability of a rate cut in July. The previous day, the probability was still around 24%. In other words: the bet on a quick interest rate cut has been settled for the time being. Even some Fed members, who had previously signaled a cautious openness to a July rate cut, now see little pressure to act.
Fed Chairman Jerome Powell has repeatedly emphasized that the Fed will wait and see how the data develops and, in particular, monitor the inflation trend. Currently, the inflation rate measured by the PCE price index (the Fed's preferred inflation measure) is only just above the 2% target at +2.3% year-on-year. The consumer price index (CPI) also remains in similar moderate regions.
However, in recent weeks there have often been fears of a return of inflation due to Donald Trump's tariff policy. So far, many companies have been able to avoid price increases by drawing on stocks that were built up before the tariffs. This effect is likely to diminish: With the publication of the June data, inflation could take a leap as soon as higher import costs are passed on to consumers.
All-time highs are a long time coming
Since the low on April 7, the Dow Jones has risen by around 22 %. Last week, the Dow delivered another strong weekly performance with a gain of 3.3 % and rose to 44,829 points. While the S&P 500 and the Nasdaq 100 have already reached new all-time highs, the Dow is still a few points below its all-time high of around 45,000 points.
Due to the bullish overall market environment, there is a high probability that the Dow Jones will soon break out to new highs. If there is another correction in the next few days, the next important support level would be 43,000 points.
Transport index signals strength
In addition to the Dow Jones Industrial Average, it also makes sense to look at the Dow Jones Transportation Average (transportation index) as part of an overall market analysis. The transportation index comprises 20 major US transportation and logistics companies (including rail, aviation, shipping and logistics) and is considered to be sensitive to economic trends. In the classic Dow theory, the transportation index plays a decisive role: an upward trend on the stock markets is only confirmed when the Dow Jones Industrial Index and the Dow Transportation Index reach new highs. The logic behind this is obvious: if the business of industrial companies picks up (rising prices in the Dow Industrials), transportation companies should also benefit from higher freight and passenger numbers. If the transportation index rises in unison, this underpins the significance of the upswing. Otherwise, caution would be advised.
As you can see on the daily chart below, the Dow Jones Transportation Average has not yet generated any new all-time highs either, but the breakout above the downtrend line and the horizontal resistance area is an important bullish signal in any case. In addition, the transportation index has developed relative strength in recent weeks (as can be seen from the ratio chart: Dow Jones Transportation Average : Dow Jones Industrial Average), which is also a positive signal for the broad market.
Author: Tobias Schmid
Date: 07.07.2025
