The major market averages, led by technology shares, bounced back last week, resulting in new all-time highs for the S&P 500 and Nasdaq Composite. Despite initial estimates of 272,000 new jobs, analysts suggest this figure is likely an overestimation and not critical for forecasting inflation. Wage growth and excess savings, which are both declining, are more significant indicators. Despite this, there is confidence in a potential soft landing for the economy, with three quarter-point rate cuts anticipated by year-end, starting in September.

The S&P 500 and Nasdaq’s fresh highs were bolstered by a rebound in technology shares and positive economic reports indicating a balanced economy. The Job Opening and Labor Turnover Survey (JOLTS) showed a drop in job openings, and service sector activity rebounded, suggesting the economy is softening just enough for the Fed to lower short-term rates. The initial job creation estimate, though, pushed back expectations for rate cuts, but this is likely to be revised down. Excess savings, closely tied to inflation, are depleting, signaling potential lower inflation rates ahead.

Despite skepticism, the U.S. economy shows resilience. The Atlanta Fed’s GDPNow model estimates Q2 GDP growth at 3.1%, although this is volatile. Foreign central banks have begun rate cuts, potentially boosting global and U.S. growth. Investor sentiment remains bullish with new market highs, even amid caution about government debt and consumer health. The 2-year Treasury yield, a key indicator, suggests a ceiling of 5% before rate cuts, aligning with market expectations of economic softening and reduced inflation.

The U.S. economy is navigating a delicate balance, with periods of weakness offset by strength, indicating a soft landing. The ADP payroll report showed a slowdown in job growth, easing inflation concerns. The ISM service sector index rebounded in May, corroborating S&P Global’s resilience findings, supporting continued economic expansion. This balanced scenario is driving expectations for three quarter-point rate cuts by year-end, beginning in September, as markets have been pricing in since early this year. Investors need to heed these signals for potential gains.

Conclusion
The market recovery, driven by technology shares, has led to new all-time highs for the S&P 500 and Nasdaq Composite, despite initial job creation estimates suggesting potential delays in rate cuts. The economy is showing signs of balancing, with decreasing wage growth and excess savings pointing to lower inflation. Expectations are set for three quarter-point rate cuts starting in September. The overall economic outlook remains positive, supported by resilient service sector activity and global growth, reinforcing investor confidence in the continuation of the bull market.