June began with a two-speed economy. On one hand, the U.S. labor market showed more strength than expected. On the other, economic activity gave new signs of cooling. So, what’s holding up the market if the real economy is losing momentum? Let’s explore what’s happening:

More jobs, but with questions

The latest jobs report surprised to the upside: in May, 272,000 jobs were created—well above the 185,000 expected. However, it wasn’t all good news:

• The unemployment rate rose to 4.0%, the highest since January 2022.

• Wages grew 4.1% year over year, a figure that could delay the decline in inflation.

• The sectors hiring the most were healthcare, government, and hospitality, while others like manufacturing or construction showed little or no hiring. In short: there are jobs, but the growth is concentrated in just a few sectors.

The Fed might keep waiting

This kind of data doesn’t make things easy for the Federal Reserve. Although inflation has come down, it remains above the 2% target, and now wages are adding extra pressure. That’s why analysts believe the Fed will keep rates at their current level (5.25%-5.50%) for longer—at least until there are clearer signs of disinflation. This week’s meeting will be key to see how many rate cuts might still be possible this year.

Markets are rising… but why?

Despite everything, the main stock indices closed higher:

• S&P 500: +1.3%

• Nasdaq: +2.4%

• Dow Jones: +0.3%

The boost came mainly from large tech companies, with Apple and Nvidia leading the way. It’s a familiar pattern: the real economy cools, but markets find support in companies that continue delivering strong profits and betting on AI.

Oil is moving again

After weeks of calm, oil prices climbed:

• Brent: +3.1%, closing near $82

• WTI: +3.3%, nearing $78

This rise was driven by expectations of higher summer demand and tighter supply from OPEC. For investors, this is something to watch: if oil rises too much, it could make lowering inflation harder.

What’s next?

This week brings a key data point: May’s Consumer Price Index (CPI). It will be one of the final pieces the Fed reviews before Wednesday’s decision. If inflation keeps falling, markets may gain confidence. But if there’s an upside surprise, we could see volatility—especially as the real economy continues moving forward… but more slowly.

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Securities offered by Northbound Securities, LLC Member FINRA/SIPC 

Sources: Financial Times, Reuters, Economic times