A crucial week of labor market data will greet investors during a holiday-shortened trading week that begins the month of July, the third quarter, and second half of 2024.

The S&P 500 (^GSPC) enters Q3 up 14.5% so far this year, while the Nasdaq Composite (^IXIC) rallied more than 18%. The Dow Jones Industrial Average (^DJI) gained a more modest 3.8% in the first six months of the year.

With stocks sitting near record highs and recent inflation trends proving more positive, all eyes have turned to the labor market for signs of weakness as the Fed maintains its restrictive interest rate stance.

The June Jobs report will provide a robust look at the labor market on Friday, while updates on private payrolls and job openings will also be in focus throughout the week. Updates on activity in the manufacturing and services sectors will also be scattered throughout the schedule.

Constellation Brands (STZ) is expected to be the focus of the lone notable corporate earnings report during an otherwise quiet week before big banks officially kick off second quarter earnings season the following week.

Markets in the US will close early on July 3 (1 p.m. ET) and will remain closed on July 4 for Independence Day.

A look at the labor market

The June Jobs report is due for release on Friday morning and is expected to show further cooling in the job market.

The report is expected to show that 188,000 nonfarm payroll jobs were added to the US economy last month, with unemployment holding steady at 4%, according to data from Bloomberg. In May, the US economy added 272,000 jobs while the unemployment rate ticked up slightly to 4%.

Bank of America US economist Michael Gapen reasoned a report along these lines would continue to show a labor market that is "cooling but not cool."

On Friday, the latest reading of the Fed's preferred inflation gauge showed inflation eased in May as prices increased at their slowest pace since March 2021.

The print was viewed as a step in the right direction for the Federal Reserve's fight against inflation.

Positive trends in inflation, combined with signs of slowing in economic activity, have economists arguing the Fed should be leaning toward cutting interest rates sooner rather than later.

"Emerging signs of softness in the labor market show [Fed] officials also need to be attentive to risks to the full employment side of their mandate," Oxford Economics deputy chief US economist Michael Pearce wrote in a note to clients.

Halftime report

Just like 2023, most of 2024's stock market rally has been driven by a few large tech stocks.

Midway through the year, more than two thirds of the S&P 500's gains for the year have come from Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Broadcom (AVGO). Nvidia alone has driven nearly one-third of these gains.

Despite some short-lived rallies throughout the year, just two sectors have outperformed the S&P 500 this year: Communications Services and Information Technology. Both are up more than 18% compared to the S&P 500's roughly 15% gain.

This has kept the debate going over whether the second half of the year will bring a broadening of the stock market rally, a hot-button issue on Wall Street.

Morgan Stanley's chief investment officer Mike Wilson recently argued in a research note that given weakening economic data and high interest rates, a true broadening in which sectors unrelated to tech pick up the slack is unlikely to happen.

"Narrow breadth can persist but it's not necessarily a headwind to forward returns in and of itself," Wilson said. "We believe broadening is likely to be limited to high quality/large cap pockets for now."

More megacap exceptionalism

Most strategists have reasoned that megacap tech companies have led the rally for good reason, given their earnings continue to outperform the market. That's expected to be the case during second quarter earnings as well.

Nvidia, Apple, Alphabet, Microsoft, Amazon, and Meta are expected to grow earnings by a combined 31.7% in the second quarter, per UBS Investment Bank US equity strategist Jonathan Golub.

The S&P 500 itself is expected to grow earnings by a more modest 7.8%.

This means that the lion's share of earnings growth is once again expected to come from Big Tech. And a similar trend has been seen in earnings revisions for the second quarter.

Since March 31, Golub's work shows earnings estimates for the S&P 500 have fallen just 0.1%, far less than the typical 3.3% drop seen on average. This is due in large part to a 3.9% revision upward for the aforementioned six biggest tech companies.

Entering the second half of the year, the debate over whether these Big Tech companies' consistent earnings beats will fall off will remain at center stage.

Weekly Calendar

Monday

Economic data: S&P Global US manufacturing, June final (51.7 expected, 51.7 prior); Construction spending, month-over-month, May (0.3% expected, -0.1% prior); ISM Manufacturing, June (49.2 expected, 48.7 prior)

Earnings: No notable earnings.

Tuesday

Economic data: Job openings, May (7.86 million expected, 8.06 million prior)

Earnings: No notable earnings.

Wednesday

Economic data: MBA Mortgage Applications, week ended June 28 (0.8%); ADP private payrolls, June (+158,000 expected, +152,000 prior); S&P global US Services PMI, June final (52.3 expected, 55.1 prior), S&P Global US composite PMI, June final (54.6 prior); ISM services index, June (52.5 expected, 53.8 prior); ISM services prices paid, June (58.1); Factory orders, May (0.3% expected, 0.7% prior); Durable goods orders, May final (0.1%)

Earnings: Constellation Brands (STZ)

Thursday

Markets are closed for the July Fourth holiday.

Friday

Economic calendar: Nonfarm payrolls, June (+188,000 expected, +272,000 prior); Unemployment rate, June (4% expected, 4% previously); Average hourly earnings, month-over-month, June (+0.3% expected, +0.4% prior); Average hourly earnings, year-over-year, June (+3.9% expected, +4.1% prior); Average weekly hours worked, June (34.3 expected, 34.3 prior); Labor force participation rate, June (62.6% expected, 62.5% prior)

Earnings: No notable earnings.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance