Surprisingly strong jobs data sent a shockwave through the equities market Thursday, with stocks tumbling across the board. Still, the major indexes managed to finish off their session lows thanks to one sliver of hope in the labor market.
Ahead of the opening bell, data from ADP showed the U.S. added 497,000 private-sector jobs in June. This was the biggest monthly increase since July 2022, and more than doubled the 220,000 new payrolls economists' were expecting. The bulk of new positions were created in the "consumer-facing service industries," according to the report.
This theme of strength in the service sector was echoed in this morning's Institute for Supply Management (ISM) services purchasing managers index (PMI), which jumped to 53.9% in June from May's reading of 50.3%.
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"Demand for services is continuing to keep the labor market tight and drive inflation with job creation in June more than doubling analysts' expectations, and the latest ISM PMI-Services release reporting that economic growth within the category is accelerating," says José Torres, senior economist at Interactive Brokers.
Meanwhile, the Labor Department said earlier that initial jobless claims climbed 12,000 last week to 248,000.
One silver lining on the jobs front was the mid-morning release of the Job Openings and Turnover Survey (JOLTS), which showed job openings fell to 9.8 million in May from April's 10.3 million.
Energy stocks sell off on Iran worries
Expectations for more rate hikes sent Treasury yields to their highest levels since March. The spike, in turn, pressured rate-sensitive sectors like tech (-0.3%) and communication services (-0.8%).
But the worst performer of all 11 S&P 500 sectors was energy (-2.3%), which dove on reports that Iran tried to seize two oil tankers near the Strait of Hormuz. ConocoPhillips (COP, -3.5%) and Exxon Mobil (XOM, -3.7%) were just two energy stocks that suffered outsized losses, with the latter also getting hit after saying lower natural gas prices will likely weigh on its second-quarter earnings.
By the time the closing bell rang, the tech-heavy Nasdaq Composite was down 0.8% at 13,679, the broader S&P 500 was off 0.8% at 4,411, and the blue chip Dow Jones Industrial Average had dropped 1.1% to 33,922.
Monthly jobs report on deck
Today's batch of mostly disappointing economic data makes tomorrow's monthly jobs report all the more anxiously awaited. The Fed has mentioned several times that labor market tightness will likely force it to keep interest rates higher for longer in order to bring inflation under control.
Jan Hatzius, chief economist at Goldman Sachs, expects tomorrow's data to show the U.S. added 250,000 new jobs in June. While this is lower than the 339,000 jobs added in May, remember that economists were only anticipating the addition of 195,000 new positions that month. Furthermore, "job growth tends to pick up in June when the labor market is tight – reflecting strong hiring of youth summer workers – and all four of the Big Data indicators we track indicate a strong pace of job growth," the economist added.
In other words: Buckle up, because Friday could be another volatile session on Wall Street.
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