US stocks fell for the second day straight while Treasury yields spiked after surprisingly strong private hiring data. Traders are next to turning to Friday payroll numbers to gauge the Federal Reserve’s next move.
(Bloomberg) — US stocks fell for the second day straight while Treasury yields spiked after surprisingly strong private hiring data. Traders are next to turning to Friday payroll numbers to gauge the Federal Reserve’s next move.
The S&P 500 and Nasdaq 100 benchmarks notched losses on Thursday after ADP Research Institute numbers showed US companies added the most jobs in over a year in June, underscoring the ongoing strength of the labor market. Swap contracts linked to future policy decisions almost fully priced in a quarter-point increase by July 26 and showed a growing likelihood of an additional hike by year end.
In afterhours trading, Levi Strauss & Co. dropped more than 7% as the denim retailer slashed its outlook for the year while Costco Wholesale Corp. dipped around 1% after monthly sales missed estimates.
Treasury yields rose across the curve after the ADP report and data showing the service sector expanded in June at the fastest pace in four months. The policy sensitive two-year rate ended the day at 4.99% after touching a 16-year high while the yield on the 10-year rose to 4.03%.
Private payrolls increased 497,000, more than double the median estimate in a Bloomberg survey of economists. Separate data from Challenger, Gray & Christmas Inc. showed the pace of job cuts by US employers slowed in June.
The numbers stunned Wall Street.
“The strength of the US labor market is almost unbelievable and this should further push out any concept of a possible recession in the US,” said Scott Ladner, chief investment officer at Horizon Investments. “But, it should also push out of the market any hopes of a Fed rate cut during 2023.”
The report was “literally off the charts relative to what was expected,” according to Peter Boockvar, chief investment officer of Bleakley Financial Group. “This jobs report squares with nothing in the survey data, nor the claims figures and from what companies themselves have been saying about hiring intentions, especially with the lackluster growth in the economy.”
Dallas Fed President Lorie Logan voiced her concerns that inflation was still running too hot and more rate hikes were needed at an event in New York Thursday. Stocks have been losing ground in July after a strong first half of the year as continued hawkishness from central banks dampens hopes of a soft landing for the global economy.
“The selloff is driven by the idea that the economy is a freight train that can’t be stopped and that the Fed is going to have to work even harder,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “And you certainly see that in the bond market, where you have an even more dramatic reaction.”
Friday’s nonfarm payrolls and unemployment reports may provide further clues on the Fed’s policy path. Economists surveyed by Bloomberg are expecting figures to moderate, though it remains to be seen if that will be enough to steer the central bank away from another rate increase. Earlier this week, minutes from the Fed’s June meeting showed division among policymakers over the decision to pause rate hikes, with the voting members on track to take rates higher later this month.
Despite the uncertainties, there’s a number of ways to participate in equities right now, according to Liz Ann Sonders, chief investment strategist at Charles Schwab, who said she has been particularly “factor-focused.”
“We think focusing on those quality-based factors with span both on the growth factor side of things and the value factor side of things is the way to approach what you are doing inside your equity allocation,” she told Bloomberg TV.
Meanwhile, a gauge of the dollar strengthened while Bitcoin and gold slipped. Treasury Secretary Janet Yellen touched down in Beijing on Thursday to attempt to further repair the relationship between the world’s two largest economies.
Key Events This Week:
- US unemployment rate, nonfarm payrolls, Friday
- ECB’s Christine Lagarde addresses an event in France, Friday
Some of the main moves in markets today:
Stocks
- The S&P 500 fell 0.8% as of 4:02 p.m. New York time
- The Nasdaq 100 fell 0.8%
- The Dow Jones Industrial Average fell 1.1%
- The MSCI World index fell 1.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.3% to $1.0887
- The British pound rose 0.3% to $1.2740
- The Japanese yen rose 0.4% to 144.10 per dollar
Cryptocurrencies
- Bitcoin fell 0.4% to $30,340.2
- Ether fell 1.2% to $1,887.2
Bonds
- The yield on 10-year Treasuries advanced 11 basis points to 4.04%
- Germany’s 10-year yield advanced 15 basis points to 2.63%
- Britain’s 10-year yield advanced 17 basis points to 4.66%
Commodities
- West Texas Intermediate crude rose 0.1% to $71.88 a barrel
- Gold futures fell 0.6% to $1,916.30 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Carly Wanna, Vildana Hajric, Richard Henderson, John Viljoen, Namitha Jagadeesh and Sagarika Jaisinghani.
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