The New York Stock Exchange stumbled on Thursday after strong private employment figures ignited bets on future Fed rate hikes and pushed bond yields higher, ahead of Friday’s official job report.
The Dow Jones index eventually dropped 1.07% to end on 33,922.26 points, after losing as much as 1.50% in the session. The Nasdaq gave up 0.82%, and finished the day on 13,679.04 points, while the S&P 500 fell by 0.79% to 4,411.59 points.
Bond yields rose to more than 5.1% during the session for the two-year rate, the highest jump since 2006, at the dawn of the housing and financial crisis.
Surprisingly strong job creation ...
According to the ADP/Standford Lab survey, US private sector job creation in June was surprisingly strong and immediately weighed down the indices.
What is good news for employment is not so good news for investors. They fear the US Central Bank will raise rates even further to calm the overheated hiring, which could fuel inflation.
At 497,000, private-sector job creation in June was twice as high as expected. “These figures were an eye-opener. It was a bit of a shock to the market,” said Steve Sosnick of Interactive Brokers.
The ADP survey “is an imperfect tool but a jump like this was hard to ignore,” the analyst added.
... fuels expectation of interest rate hikes
If the jobs market remains this buoyant, it means “a rate hike is coming at the next meeting” on July 25 and 26: there is a 90% chance of a rate hike in July and 50% also in September, according to CME Fedwatch calculations, Sosnick recalled.
Investors are nervous about these labour market figures because on Friday, just before the market opens, the Labour Department will publish its own figures for June.
Analysts are forecasting 220,000 new hires, compared with 339,000 in May, with an unemployment rate of 3.6% compared with 3.7% the month before.
By selling off on Thursday, “the market was right to anticipate that Friday’s figure will be stronger than expected,” commented Sosnick.
Adding to the message about further Fed tightening, Monetary Committee member Lorie Logan, president of the Dallas Fed, said the Federal Reserve should continue to raise rates.
Given the economic environment, the Monetary Committee must pursue a more restrictive policy in order to return inflation to target in a sustainable and timely manner, Logan said, pointing out that she was in the camp of those who favoured another hike in June when the Fed had finally decided to pause.
Energy, real estate, communications all in the red
The VIX index, known as the fear index because it reflects market volatility, had a blip, at its highest for a month.
On the value side, no sector was spared the red, from energy (-2.45%) to real estate (-0.60%) and communication services (-1.21%).
Meta gave up 0.81% as Facebook’s parent company launched a new social network, Threads, which aims to rival Twitter.
The app, which was launched at 2300 GMT on Wednesday in 100 countries and currently operates without advertising, is the biggest challenge to Elon Musk's Twitter, which has already been weakened by a series of setbacks. On its first day, the app attracted 30 million subscribers.
Tesla, Google, Amazon lose ground
Tesla lost 2.10%, Google was down by 1.39% and Amazon by 1.55%.
Data analytics specialist Palantir shed 3.63%, as the share’s high level, inflated since the start of the year by market enthusiasm for artificial intelligence, prompted profit-taking.
US airline JetBlue lost altitude (-7.18%), dropping to $8.66, after deciding to abandon its partnership with American Airlines since federal courts instructed the two allies in mid-May to end their collaboration.
The group’s boss said internally that JetBlue wanted to focus on its merger with low-cost airline Spirit.
