Weekly Economic Update: July 7th, 2026

Second-quarter comeback

It’s hard to believe 2026 is half over! After a weak first quarter, driven largely by tensions in the Persian Gulf and higher energy prices, markets rebounded in a big way in the second quarter.¹ As soon as the bombing stopped and the negotiating began, U.S. markets roared back to life. The S&P 500 had its best quarter in six years, rising nearly 15%.² All the major indexes set records over and over again, and we ended the quarter at or near all-time highs.

Most gains in the quarter were in April and May, with the market remaining mostly flat in June. There was the on-again, off-again fretting over high-priced tech stocks, the skyrocketing costs of AI infrastructure and the SpaceX IPO hype, yet the markets shrugged it all off to advance higher into the summer months.

That’s an encouraging sign, but the reality is there are still a lot of obstacles to navigate from here. On the plus side, oil prices have declined significantly from their pre-conflict highs, and consumers are still spending.^3,4 The downside is that, with the summer travel season upon us, consumers won’t really see a comparable drop in gas prices anytime soon. Plus, inflation is still with us, and the situation in Iran could deteriorate quickly.

We don’t recommend throwing caution to the wind and piling into equities right now, but we also don’t think it’s a good time to walk away from markets. Sentiment is a tricky thing; feelings are real, and for markets, it’s clearly very powerful to the upside right now. Rates are higher than we’d like to see, which will continue to weigh on tech stocks since they are highly dependent on borrowing to finance their projects until they can turn a profit. In the meantime, we’ll be grateful for the comeback in the second quarter after a pretty dark first quarter.

June jobs data is “meh”

The June jobs data was reported a day early last week, since markets were closed on Friday in observance of Independence Day. Consensus was calling for 114,000 new jobs to be created; instead, 57,000 were reported for June, far below expectations. The unemployment rate dipped from 4.3% to 4.2%, and the participation rate fell from 61.8% to 61.5%.⁵

Some pundits called it a “Goldilocks” report, saying it showed solid, non-inflationary growth. But we’ll take the other side of the argument. First, we probably should have seen a significant bump in jobs given all the hoopla around the World Cup currently going on. Goldman Sachs projected 40,000 new jobs in the hotel and restaurant industry, and we had a negative reading (-61,000) instead.⁶ We also saw May’s new jobs number revised downward from 172,000 to 129,000. So job growth was already weakening in May.

The drop in the unemployment rate was celebrated, but that’s not because more people were hired than fired — it’s because fewer people were looking for jobs. The participation rate measures the share of people age 16 and older who are either working or looking for work. It looks like more people threw in the towel on finding a job, so they don’t count toward the unemployment rate.

Wages were up a meager 0.1% to 3.5% in June, while the Consumer Price Index (CPI) was last reported at 4.2%, so wage growth isn’t keeping up with inflation.⁷ Earlier in the week, the ADP employment report missed consensus as well, running at 98,000 new jobs versus an expected 117,000.⁸ On a brighter note, job openings for May were still running at about 7.5 million, so there are still jobs to be had.⁹

Until now, job growth was the one steady factor in an otherwise unremarkable economy. Consumers are still spending but are getting stressed and falling behind, while inflation is driving prices higher, and the conflict with Iran could quickly ramp up oil prices again. While one month’s data shouldn’t be a cause for alarm, we’d rather see it going in the other direction.

Markets rallied initially on the jobs news, as they assumed a softer jobs report would mean the Federal Reserve would more than likely leave rates alone or even consider cutting them. That’s not likely given the latest inflation data; in fact, Bank of America is calling for three rate hikes by year end.¹⁰

By the end of Thursday, markets gave back their gains as more sobering thoughts came into play ahead of the long holiday weekend. If jobs continue to soften along with the rest of the economy, it won’t be long before the market’s euphoria turns into worry as it starts focusing on the possibility of recession while we’re still experiencing higher inflation. This period of low growth and high prices is what we call “stagflation,” and it’s the worst of both worlds for the economy.¹¹

Coming this week

• We’ll be back to a full week of trading, but much of Wall Street will still be on vacation as we head into deep summer. We could run the gamut from no activity to wild swings if the news gets spicy.
• We won’t see much in the way of data on Monday or Tuesday. Wednesday will kick off with a bunch of Fed speakers, whose comments might be insightful given Chairman Kevin Warsh’s comments last week that inflation is too high. Wednesday will also feature MBA mortgage applications.
• The only meaningful stat the rest of the week will be weekly jobless claims, which are expected to stay around 220,000.

Sources:

¹ Prem Patel. Kiplinger. July 2, 2026. “How the Stock Market Performed in the Second Quarter of 2026: An Investment Adviser’s Take.” https://www.kiplinger.com/investing/how-the-stock-market-performed-in-q2-2026. Accessed July 6, 2026.

² Trevor Jennewine. The Motley Fool. July 2, 2026. “The S&P 500 Just Had Its Best Quarter Since 2020. The Stock Market Will Make a Big Move Next if History Repeats.” https://www.fool.com/investing/2026/07/02/sp-500-best-quarter-stock-market-big-move-next/. Accessed July 6, 2026.

³ Business Insider. “Oil (WTI).” https://markets.businessinsider.com/commodities/oil-price?type=wti. Accessed July 6, 2026.

⁴ Bureau of Economic Analysis. June 25, 2026. “Personal Income and Outlays, May 2026.” https://www.bea.gov/news/2026/personal-income-and-outlays-may-2026. Accessed July 6, 2026.

⁵ Bureau of Labor Statistics. July 2, 2026. “The Employment Situation — June 2026.” https://www.bls.gov/news.release/pdf/empsit.pdf. Accessed July 6, 2026.

⁶ Jeff Cox. CNBC. July 1, 2026. “World Cup could boost the June jobs report by 40,000, Goldman estimates.” https://www.cnbc.com/2026/07/01/world-cup-could-boost-the-june-jobs-report-by-40000-goldman-estimates.html. Accessed July 6, 2026.

⁷ Bureau of Labor Statistics. June 10, 2026. “Consumer Price Index Summary.” https://www.bls.gov/news.release/cpi.nr0.htm. Accessed July 6, 2026.

⁸ ADP Research. June 2026. “ADP National Employment Report.” https://adpemploymentreport.com/. Accessed July 6, 2026.

⁹ Bureau of Labor Statistics. June 30, 2026. “Job Openings and Labor Turnover Summary.” https://www.bls.gov/news.release/jolts.nr0.htm. Accessed July 6, 2026.

¹⁰ Yahoo! Finance. June 24, 2026. “Bank of America expects three rate hikes, reversing outlook.” https://finance.yahoo.com/economy/policy/articles/bank-america-expects-three-rate-120747967.html. Accessed July 6, 2026.

¹¹ Fidelity. April 9, 2026. “What is stagflation?” https://www.fidelity.com/learning-center/smart-money/stagflation. Accessed July 6, 2026.

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