Closing Market SummaryThe stock market retreated on Friday, sending the major averages back into negative territory for the week. The Nasdaq (-2.5%) underperformed throughout the session, surrendering 1.0% for the week, while the S&P 500 (-1.6%) and Dow (-1.1%) lost a respective 1.2% and 0.9% since last Friday. Small caps held up a bit better with the Russell 2000 (-0.8%) giving back 0.3% this week.
Equity indices had to contend with weak sentiment from the open after it was reported that Tesla (TSLA 703.55, -71.45, -9.2%) CEO Musk sent an email to other executives at his company, expressing concern about the economy. Mr. Musk said that he has a "super bad feeling" about what is ahead, and that Tesla's workforce needs to be reduced by about 10%.
In addition to the warning from a prominent CEO, the market received a better than expected jobs report for May, which didn't offer much of an argument for a slowdown in the Fed's rate hike plans. That said, employment in retail trade declined by 61,000 in May and the number of persons employed part time for economic reasons increased by 295,000 to 4.3 million, reflecting an increase in employees whose hours were cut due to slack work or business conditions.
Ten out of eleven sectors finished the day in negative territory with cyclical groups like consumer discretionary (-2.9%), technology (-2.5%), and communication services (-2.4%) spending the day at the bottom of the leaderboard.
The discretionary sector lagged after showing relative strength earlier this week with Tesla making a significant contribution to today's underperformance. Top component Amazon (AMZN 2447.00, -63.22, -2.5%) finished a bit ahead of the sector but still lost more than 2.0%. The stock will begin trading on a split-adjusted basis on Monday.
Like the consumer discretionary sector, top-weighted technology was also pressured by some of its largest components. Apple (AAPL 145.38, -5.83, -3.9%) slid from this week's high back to its opening level from last Friday after Morgan Stanley expressed concern about weak May revenue growth in the company's App Store, which could be setting the stage for a disappointing quarter for the company's services division.
Micron (MU 69.94, -5.94, -7.2%) was the worst performer in the tech sector, falling back below its 50-day moving average (72.09) after being downgraded to Underweight with a $70 price target at Piper Sandler. The downgrade also invited notable weakness in NVIDIA (NVDA 187.20, -8.72, -4.5%) since the company buys memory chips for its products from Micron.
The commodity-sensitive materials sector (-1.0%) could not avoid a lower finish while energy (+1.4%) showed continued resilience. The sector returned toward its high from Monday, aided by a higher price of oil. WTI crude rose $2.40, or 2.1%, to $119.22/bbl, pushing past Monday's high (119.98) in electronic trade that followed today's pit close.
Treasuries finished a down week on a lower note with the 10-yr yield rising four basis points to 2.96%. The 2s10s spread ended the week at 28 bps, unchanged from last Friday as yields on the 2-yr note and the 10-yr note increased by 22 bps during the abbreviated week.
Reviewing today's economic data:
- May nonfarm payrolls increased by 390,000 (consensus 325,000). The 3-month average for total nonfarm payrolls decreased to 408,000 from 516,000. April nonfarm payrolls revised to 436,000 from 428,000. March nonfarm payrolls revised to 398,000 from 424,000.
- May private sector payrolls increased by 333,000 (consensus 301,000). April private sector payrolls revised to 405,000 from 406,000. March private sector payrolls revised to 385,000 from 424,000.
- May unemployment rate was 3.6% (consensus 3.5%), versus 3.6% in April. Persons unemployed for 27 weeks or more accounted for 23.2% of the unemployed versus 25.2% in April. The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.1%, versus 7.0% in April.
- May average hourly earnings were up 0.3% (consensus 0.4%) versus an unrevised 0.3% increase in April. Over the last 12 months, average hourly earnings have risen 5.2%, versus 5.5% for the 12 months ending in April.
- The average workweek in May was 34.6 hours (consensus 34.6), versus 34.6 hours in April. Manufacturing workweek was unchanged at 40.4 hours. Factory overtime dipped 0.1 hours to 3.2 hours.
- The labor force participation rate increased to 62.3% from 62.2% in April.
- The employment-population ratio increased to 60.1% from 60.0% in April.
- The ISM Non-Manufacturing Index for May decreased to 55.9% (consensus 56.6%) from 57.1% in April. The dividing line between expansion and contraction is 50.0%. The May reading marks the 24th straight month of growth for the services sector, but it is the lowest reading since February 2021.
- The key takeaway from the May report is that business activity for the non-manufacturing sector slowed for the second straight month as businesses continued to grapple with pricing pressures, supply chain issues, and labor supply constraints.
- The IHS Markit Services PMI dipped to 53.4 in the final reading for May from 53.5 in the preliminary reading.
There is no economic data on Monday's schedule.
- Dow Jones Industrial Average -9.5% YTD
- S&P 400 -11.2% YTD
- S&P 500 -13.8% YTD
- Russell 2000 -16.1% YTD
- Nasdaq Composite -23.2% YTD