Wall St logs sharp losses as labor market strength stokes rate-hike
fears
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[July 07, 2023] By
Lewis Krauskopf, Bansari Mayur Kamdar and Johann M Cherian
(Reuters) - Wall Street's main indexes ended sharply lower on Thursday
in a broad sell-off after data showing a strong labor market boosted
bond yields and fanned fears the Federal Reserve will be aggressive in
raising U.S. interest rates.
The S&P 500 posted its biggest daily percentage drop since May 23. The
Dow logged its biggest single-day fall since May 2.
Private payrolls surged far more than expected in June, data showed,
suggesting the labor market remained solid despite growing risks of a
recession. A separate report showed U.S. job openings dropped in May,
but remained at elevated levels.
A day before the monthly U.S employment report, evidence of a solid
labor market spurred expectations the Fed will keep interest rates
higher for longer to tame stubborn inflation.
“We don’t see any softening in the labor market,” said Brad McMillan,
chief investment officer for Commonwealth Financial Network. “The Fed
doesn’t have to worry about the jobs market. When you look at their
mandate, they have no reason not to keep hiking and to keep hiking for a
while.”
The Dow Jones Industrial Average fell 366.38 points, or 1.07%, to
33,922.26, the S&P 500 lost 35.23 points, or 0.79%, to 4,411.59 and the
Nasdaq Composite dropped 112.61 points, or 0.82%, to 13,679.04.
All 11 S&P 500 sectors ended down. Energy led declines among the
sectors, dropping about 2.5%, while consumer discretionary slumped
nearly 1.7%.
Gains in megacap stocks mitigated declines for the major indexes, which
ended above their session lows. Microsoft rose 0.9% while Apple was up
0.3%.
Treasury yields jumped following the labor market data. The benchmark
10-year yield burst above 4% while the two-year Treasury yield, which
typically moves in step with interest rate expectations, hit a 16-year
high.
U.S. interest rate futures saw an increased probability of another rate
hike by the Federal Reserve in November, according to CME's FedWatch.
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Traders work on the floor of the New
York Stock Exchange (NYSE) in New York City, U.S., July 6, 2023.
REUTERS/Brendan McDermid
The Fed did not hike rates in June but is widely expected to resume
increases at its July meeting. Dallas Fed President Lorie Logan said
there was a case for a rate rise at the June policy meeting.
In company news, Exxon Mobil Corp shares fell 3.7% after the oil
major signaled a sharp fall in second-quarter operating profits on
lower natural gas prices and weaker oil refining margins.
Second-quarter corporate reports will arrive in coming weeks with
S&P 500 earnings expected to fall 5.7% from a year-ago, according to
Refinitiv data.
“You have a situation where rates are going higher, profits are not
really moving," said King Lip, chief strategist at Baker Avenue
Wealth Management. "That’s usually not a good combination for
stocks.”
JetBlue Airways shares dropped 7.2% a day after the company said it
would follow a U.S. judge's May order to end its alliance with
American Airlines to protect a planned purchase of Spirit Airlines.
Declining issues outnumbered advancing ones on the NYSE by a
6.01-to-1 ratio; on Nasdaq, a 3.25-to-1 ratio favored decliners.
The S&P 500 posted 4 new 52-week highs and 2 new lows; the Nasdaq
Composite recorded 27 new highs and 118 new lows.
About 11.7 billion shares changed hands in U.S. exchanges, compared
with the 11.1 billion daily average over the last 20 sessions.
(Reporting by Lewis Krauskopf in New York, Bansari Mayur Kamdar and
Johann M Cherian in Bengaluru; Editing by Vinay Dwivedi, Shinjini
Ganguli and David Gregorio)
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