The Dow Fell 44 Points Because Jobs Weren’t Bad Enough to Be Good News
(Barron’s, Sunday July 7th, 2019) – U.S. stocks dropped Friday after the Fourth of July holiday, as the latest payrolls report was fairly positive, and consequentially reduced the chance of deeper Fed rate cuts.
Jobs, Jobs, Jobs. U.S. stocks dropped Friday after the Fourth of July holiday, as the latest payrolls report was fairly positive, and consequentially reduced the chance of deeper Fed rate cuts. The sentiment has weighed on the stock and bond market, as well as the dollar and a basket of commodities. Despite recovering throughout the day, all three major indexes closed with losses. In today’s After the Bell, we…
check out the latest jobs report for June;
inspect how it has affected different corners of the market;
and wonder why the markets keep going up despite falling corporate profits.
Good Is the New Bad?
All three major U.S. stock indexes closed in the red on Friday. The Dow Jones Industrial Average has declined 43.88 points, or 0.16%, to close at 26,922.12. The S&P 500 slipped 5.41 points, or 0.18%, to end at 2990.41, and the Nasdaq Composite fell 8.44 points, or 0.10%, to close at 8161.79.
The U.S. economy added 224,000 jobs in June, topping expectations for 164,000, while the unemployment rate ticked up to 3.7%, higher than expectations for 3.6%. Wages grew by 3.1 year-over-year, below forecasts for 3.2%, as labor-force participation increased.
Despite being generally positive, the jobs report sent stocks lower as the good numbers make it less likely that the Federal Reserve will cut target interest rates by much at the July Federal Open Market Committee meeting. On the fed-fund-futures market, the probability of a 25 basis-point rate cut remains at 100%, but the chance for a 50 basis-point rate cut dropped from nearly 29.2% on Wednesday to 5.4% on Friday, according to the CME Group.
“Employment growth remains a bright spot amid a fairly mixed bag of U.S. data and yet markets have come to expect a cut now so will fall out of bed if they don’t get one,” wrote Aberdeen Standard Investments strategist Luke Bartholomew on Friday, “It does give the Fed some breathing space in the sense that there’s no immediate need now to signal a significant cutting cycle.”
While stocks fall, the higher interest-rate expectations are driving up the Treasury yields. The benchmark two-year yield jumped 10.5 basis points to 1.870% on Friday, while the 10-year yield rose 9.3 basis points to 2.044%.
The jobs report is also pushing commodity futures prices lower, as the market was more focused on what it means for the Federal Reserve’s next move, rather than an expanding economy that’s typically considered supportive of demand-sensitive resources such as industrial metal and oil. Silver futures for July delivery fell 2.2% on Friday, and copper futures slipped 0.8%, while August iron-ore futures and October platinum futures plunged 6% and 3.5%, respectively.
Gold futures for July delivery also fell 1.5% to $1396.70, as a better-than-expected economy softened investors’ demand for the safe-haven asset, which climbed over 10% in June as U.S.-China trade tensions escalated. Many financial pundits continue to recommend gold and the metals though as stocks reflecting a sideways response to the jobs report means the economy is still struggling.
However, despite the market’s one-day drop continued strong jobs data make a recession seems far away. Combined with the Fed easing and truce in the trade war, the debt and equity markets should see some rally into the summer, according to Bartholomew.
One thing to be mindful of, though, is that there has been a disconnect between the corporate performance and market returns in 2019. The major U.S. equity benchmarks are hitting or nearing all-time highs, even though corporate profits economywide has been falling for nearly a year, noted Ned Davis of Ned Davis Research. The reason? Corporate buybacks have been the top driver of stock market rally in the first half of the year, according to Bank of America Merrill Lynch.
The Hot Stock
Jefferies Financial Group stock (JEF) rose 3.4% to end at $21.42, rallying for a second session after reporting upbeat fiscal-second-quarter earnings Wednesday morning.
The Biggest Loser
Electronic Arts stock (EA) fell 4.6% to $93.60, for a two-day drop on fears that its Apex Legends could underperform.
Posted by :
Jack Dempsey , President
401 Gold Consultants LLC
jdemp2003@gmail.com