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U.S. stock markets closed lower on Thursday that the Fed will continue to hike interest rate after a brief pause in last FOMC meeting. Strong private sector payroll for June raised market participants’ concern that tighter monetary control will stay for longer-than-expected period. All the three major stock indexes ended in negative territory.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) dropped 1.1% or 366.38 points to close at 33,922.26. Notably, 28 components of the 30-stock index ended in negative territory, while two in positive zone. The blue-chip index posted its worst single-day performance since May.
The tech-heavy Nasdaq Composite finished at 13,679.04, sliding 0.8% or 112.61 points due to weak performance of large-cap technology stocks. The S&P 500 fell 0.8% to end at 4,411.59. The broad-market index recorded its worst single-day performance since May.
All 11 broad sectors of the benchmark ended in negative territory. The Consumer Discretionary Select Sector SPDR (XLY), the Energy Select Sector SPDR (XLE) and the Utilities Select Sector SPDR (XLU) tumbled 1.6%, 2.3% and 1.2%, respectively.
The fear-gauge CBOE Volatility Index (VIX) was up 8.9% to 15.44. A total of 11.7 billion shares were traded on Thursday, higher than the last 20-session average of 11.1 billion. Decliners outnumbered advancers on the NYSE by a 6.01-to-1 ratio. On Nasdaq, a 3.25-to-1 ratio favored declining issues.
Strong Private Sector Payroll for June
Automatic Data Processing Inc. (ADP - Free Report) reported that the U.S. private sector added 497,000 jobs in June, well above the consensus estimate of 220,000. May’s data was revised downward to 267,000. Market participants are concerned that the Fed will continue to hike interest rate for a longer period.
The minutes of the June’s FOMC meeting showed that Fed members unanimously opined for more rate hike going forward since the inflation rate stayed elevated despite a sharp reduction form its June 2022 peak. The Fed’s June FOMC dot-plot showed that most of the members were expecting two more rate hike of 25 basis points each by the end of this year.
Consequently, the terminal interest rate is now considered at 5.625% instead of 5.125% expected at the end of May FOMC meeting. Notably, the central bank paused interest rate hike in June FOMC meeting after 10 consecutive increases.
Following the release of the release of the ADP job report, the yield of the short-term 2-Year U.S. Treasury Note jumped to 5.12%, its highest since Jun 15, 2007. This yield is considered as most susceptible to investors’ concern about a near-term recession.
The yield of the benchmark 10-Year U.S. Treasury Note also spiked to 4.052%. This yield is closely linked to the mortgage rate. The yield on the long-term 30-Year U.S. Treasury Note rose to 4.014%. The CME FedWatch currently points to a 92.5% probability that the Fed will raise the lending rate by 25 basis points in July FOMC meeting and 7.5% chance that a status quo will be maintained.
Economic Data
The Institute od Supply Management reported that the U.S. services PMI (purchasing managers’ Index) came in at 53.9 in June, beating the consensus estimate of 51.3. May’s data was 50.3. Any reading above 50 implies expansion of services activities.
The U.S. trade deficit came in at $69 billion in May, marginally higher than the consensus estimates of $68.9 billion. April’s data was revised downward to $74.4 billion from $74.6 billion reported earlier.
The Department of Labor reported that weekly jobless claims decreased by 12,000 to 248,000 for the week ended Jul 1, beating the consensus estimate of 245,000. The previous week’s data was revised downward by 3,000 to 236,000 from 239,000 reported earlier.
Continuing claims — people who already received government unemployment benefit and run a week behind the headline number — came in at 1.72 million for the week ended Jun 24. This compares to a revised 1.742 million in the prior week.
Job Openings and Labor Turnover Survey reported that job openings came in at 9.82 million in May, missing the consensus estimate of 9.9 million. May’s data was 496,000 lower than April’s data.
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Stock Market News for Jul 7, 2023
U.S. stock markets closed lower on Thursday that the Fed will continue to hike interest rate after a brief pause in last FOMC meeting. Strong private sector payroll for June raised market participants’ concern that tighter monetary control will stay for longer-than-expected period. All the three major stock indexes ended in negative territory.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) dropped 1.1% or 366.38 points to close at 33,922.26. Notably, 28 components of the 30-stock index ended in negative territory, while two in positive zone. The blue-chip index posted its worst single-day performance since May.
The tech-heavy Nasdaq Composite finished at 13,679.04, sliding 0.8% or 112.61 points due to weak performance of large-cap technology stocks. The S&P 500 fell 0.8% to end at 4,411.59. The broad-market index recorded its worst single-day performance since May.
All 11 broad sectors of the benchmark ended in negative territory. The Consumer Discretionary Select Sector SPDR (XLY), the Energy Select Sector SPDR (XLE) and the Utilities Select Sector SPDR (XLU) tumbled 1.6%, 2.3% and 1.2%, respectively.
The fear-gauge CBOE Volatility Index (VIX) was up 8.9% to 15.44. A total of 11.7 billion shares were traded on Thursday, higher than the last 20-session average of 11.1 billion. Decliners outnumbered advancers on the NYSE by a 6.01-to-1 ratio. On Nasdaq, a 3.25-to-1 ratio favored declining issues.
Strong Private Sector Payroll for June
Automatic Data Processing Inc. (ADP - Free Report) reported that the U.S. private sector added 497,000 jobs in June, well above the consensus estimate of 220,000. May’s data was revised downward to 267,000. Market participants are concerned that the Fed will continue to hike interest rate for a longer period.
The minutes of the June’s FOMC meeting showed that Fed members unanimously opined for more rate hike going forward since the inflation rate stayed elevated despite a sharp reduction form its June 2022 peak. The Fed’s June FOMC dot-plot showed that most of the members were expecting two more rate hike of 25 basis points each by the end of this year.
Consequently, the terminal interest rate is now considered at 5.625% instead of 5.125% expected at the end of May FOMC meeting. Notably, the central bank paused interest rate hike in June FOMC meeting after 10 consecutive increases.
Automatic Data Processing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Yields on Sovereign Bonds Spike
Following the release of the release of the ADP job report, the yield of the short-term 2-Year U.S. Treasury Note jumped to 5.12%, its highest since Jun 15, 2007. This yield is considered as most susceptible to investors’ concern about a near-term recession.
The yield of the benchmark 10-Year U.S. Treasury Note also spiked to 4.052%. This yield is closely linked to the mortgage rate. The yield on the long-term 30-Year U.S. Treasury Note rose to 4.014%. The CME FedWatch currently points to a 92.5% probability that the Fed will raise the lending rate by 25 basis points in July FOMC meeting and 7.5% chance that a status quo will be maintained.
Economic Data
The Institute od Supply Management reported that the U.S. services PMI (purchasing managers’ Index) came in at 53.9 in June, beating the consensus estimate of 51.3. May’s data was 50.3. Any reading above 50 implies expansion of services activities.
The U.S. trade deficit came in at $69 billion in May, marginally higher than the consensus estimates of $68.9 billion. April’s data was revised downward to $74.4 billion from $74.6 billion reported earlier.
The Department of Labor reported that weekly jobless claims decreased by 12,000 to 248,000 for the week ended Jul 1, beating the consensus estimate of 245,000. The previous week’s data was revised downward by 3,000 to 236,000 from 239,000 reported earlier.
Continuing claims — people who already received government unemployment benefit and run a week behind the headline number — came in at 1.72 million for the week ended Jun 24. This compares to a revised 1.742 million in the prior week.
Job Openings and Labor Turnover Survey reported that job openings came in at 9.82 million in May, missing the consensus estimate of 9.9 million. May’s data was 496,000 lower than April’s data.