Closing Stock Market SummaryThe major indices all registered losses on this downbeat session, yet they were able to rebound from intraday lows around mid-morning with no specific news to account for the move, although the rebound coincided with market rates sliding back from peak intraday levels. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average had been down as much as 1.4%, 1.6%, and 1.5%, respectively. By the close, their losses ranged from 0.8% to 1.1%.
Even the Russell 2000, which lagged its larger peers with a 1.6% decline, bounced back from an earlier loss of 2.6%.
Rising market rates, the biggest factor driving today's retreat, created a reason to take more money off the table following the market's strong start to the year. The 2-yr note yield rose seven basis points to 5.01% and the 10-yr note yield rose 10 basis points to 4.04%. Those moves were in response to this morning's strong labor data and the stronger-than-expected ISM Non-Manufacturing Index for June.
Briefly, ADP estimated that 497,000 jobs were added to private sector payrolls in June (Briefing.com consensus 245,000). That news preceded a report that weekly initial jobless claims for the week ending July 1 were 248,000 (Briefing.com consensus 250,000), which is well below recession-like levels. The Employment Situation Report for June will be released before the open on Friday.
The bump in rates stoked valuation concerns in the stock market as participants considered the possibility of the Fed being more aggressive than expected with its tightening action. A 25 basis points rate hike in July has been solidified while expectations for rate hikes at future meetings increased.
According to the CME FedWatch Tool, the probability of a second rate hike in September jumped to 27.7% from 18.1% yesterday; however, the probability of a rate hike in November jumped to 46.7% from 35.9%.
All 11 S&P 500 sectors and 28 of the 30 Dow components closed with losses. Apple (AAPL 191.81, +0.48, +0.3%) and Microsoft (MSFT 341.27, +3.12, +0.9%) were the lone outperformers to close with a gain from the DJIA. Those stocks also offered some support to the information technology sector (-0.2%), which saw the slimmest decline today.
Other sectors that outperformed the broader market included consumer staples (-0.3%) and real estate (-0.6%). Meanwhile, the energy (-2.5%) and consumer discretionary (-1.7%) sectors logged the largest declines.
- Nasdaq Composite: +30.7% YTD
- S&P 500: +14.9% YTD
- S&P Midcap 400: +6.1% YTD
- Russell 2000: +4.6% YTD
- Dow Jones Industrial Average: +2.3% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index fell 4.4% with purchase applications dropping 5.0% and refinance applications falling 4.0%.
- According to ADP, private sector hiring increased by 497,000 in June (consensus 245,000) following a downwardly revised 267,000 (from 278,000) in May. Jobs in the goods-producing sector increased by 124,000 while jobs in the service-providing sector surged by 373,000. Small and medium businesses led the hiring, registering gains of 299,000 and 183,000, respectively, versus a decline of 8,000 positions at large establishments.
- Separately, initial jobless claims for the week ending July 1 increased by 12,000 to 248,000 (Briefing.com consensus 245,000). Continuing jobless claims for the week ending June 24 decreased by 13,000 to 1.720 million.
- The key takeaway from the report is much the same: initial jobless claims -- a leading indicator -- continue to run well below recession-like levels.
- The May Trade Balance Report showed a narrowing in the trade deficit to $69.0 billion ( consensus -$69.0 billion) from an upwardly revised $74.4 billion (from -$74.6 billion) in April. The deficit moved in a positive direction, but not because of any overwhelming strength in exports. On the contrary, exports were $2.1 billion less than April exports. The swing factor was that imports were $7.5 billion less than April imports.
- The key takeaway from the report is that the decline in exports and imports is emblematic of a softening in global demand that one would expect to see in an environment where many of the world's leading central banks are raising rates.
- The final IHS Markit Services PMI reading for June fell to 54.4 from 54.9.
- JOLTS - Job Openings totaled 9.824 million in May following a revised count of 10.320 million in April (from 10.103 million).
- The ISM Non-Manufacturing Index for June checked in at 53.9% (consensus 51.1%), increasing from 50.3% in May. The dividing line between expansion and contraction is 50.0%. The increase from May suggests activity in the services sector picked up steam in June.
- The key takeaway from the report is the understanding that services sector activity expanded at a faster pace in June, a trend that will temper hard-landing concerns and presumably contribute to the Fed's inclination to implement additional tightening.
- Weekly EIA Crude Oil Inventories showed a draw of 1.51 million barrels after last week's draw of 9.60 million barrels.
Market participants will receive the June Employment Report tomorrow at 8:30 a.m. ET that will include:
- Nonfarm Payrolls ( consensus 220,000; prior 339,000)
- Nonfarm Private Payrolls ( consensus 210,000; prior 283,000)
- Average Hourly Earnings ( consensus 0.3%; prior 0.3%)
- Unemployment Rate ( consensus 3.6%; prior 3.7%)
- Average Workweek ( consensus 34.3; prior 34.3)
Weekly EIA Natural Gas Inventories (prior +76 bcf) will be released at 10:30 a.m. ET.