August 9, 2022

News of the Trade

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Dow trims decline seen after robust July jobs report reinforced Fed rate hike expectations

U.S. stocks trimmed sharp losses seen early Friday after a much stronger than expected reading on July employment reinforced expectations for the Federal Reserve to keep aggressively raising interest rates in its bid to rein in inflation.

What’s happening
  • The Dow Jones Industrial Average
    DJIA,
    -0.23%
    fell 20 points, or 0.1%, to 32,707.

  • The S&P 500
    SPX,
    -0.59%
    was down 10 points, or 0.2%, at 4,143.

  • The Nasdaq Composite
    COMP,
    -1.00%
    shed 44 points, or 0.3%, to trade at 12,677.

Stocks logged a mixed finish on Thursday, with the Dow losing 85.68 points, or 0.3%, while the S&P 500 edged down 0.1% and the Nasdaq Composite gained 0.4%.

Market drivers

The U.S. economy added 528,000 jobs in July, the Labor Department reported, far exceeding the 258,000 consensus estimate. The unemployment rate ticked down to 3.5% from 3.6%, while average hourly earnings climbed 15 cents, or 0.5%, to $32.27.

Announcements of layoffs by a number of high profile companies had earlier raised concerns that a robust labor market may be softening.

The data triggered a sharp rise in U.S. Treasury yields and a selloff in stock-index futures that translated into a sharply lower opening in cash trading as investors priced in prospects of further jumbo-sized rate hikes by the Federal Reserve.

But stocks demonstrated resilience in morning trade, with analysts arguing that the strong data reinforces the idea that the economy can withstand aggressive Fed monetary tightening without falling into recession. Sharp falls in commodity prices, including oil, meanwhile, have helped to reinforce ideas that inflation is near a peak.

Fed-funds futures traders priced in a 69.5% chance of a 75 basis point rate hike in September, up from 34% on Thursday. Traders see a 30.5% probability of a 50 basis point move when the Fed next meets on September 20-21.

“The economy is clearly firing on all cylinders as this morning’s job report showed growth across all sectors. The release should quiet the bears in the room who have been crying recession in recent days,” said Peter Essele, head of portfolio management at Commonwealth Financial Network.

“Strong jobs growth and moderating price inflation should help extend the current relief rally through the end of the year,” he said in emailed comments.

The monthly employment report, however, is a lagging indicator. And investors and policy makers still have lots of data to sift through between now and the Fed’s September policy meeting.

“Friday’s extremely strong jobs data suggests that many businesses are not allowing recession fears to stand in the way of hiring,” said Ryan Belanger, managing principal and founder at Claro Advisors. “The jury is out on whether this robust pace of hiring can continue as many large and small companies have recently taken steps to slow hiring or even layoff existing employees.”

“We believe next Wednesday’s Consumer Price Index data will weigh more heavily on Federal Reserve policy than Friday’s jobs report, as fighting inflation is the Fed’s top focus,” Belanger said in emailed comments.

Another busy week of corporate earnings reports were also wrapping up. Investors have largely viewed results as better than feared, providing another source of support for equities.

More than 80% of S&P 500 index companies have now reported for the second quarter earnings season, and so far profits are up 8.6%, on a blended basis according to Refinitiv.

Meanwhile, geopolitical tensions remain an undercurrent for markets. China conducted “precision missile strikes” Thursday in waters off Taiwan’s coasts as part of military exercises that have raised tensions in the region to their highest level in decades following a visit by U.S. House Speaker Nancy Pelosi to the island.

Five of the missiles fired by China landed in Japan’s Exclusive Economic Zone off Hateruma, an island far south of Japan’s main islands, Japanese Defense Minister Nobuo Kishi said. He said Japan protested the missile landings to China as “serious threats to Japan’s national security and the safety of the Japanese people.”

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Companies in focus
  • Tesla Inc.
    TSLA,
    -4.20%
    shareholders on Thursday approved a proposal expected to lead to a 3-for-1 stock split and sided with the company on most of the proposals up for a vote. Shares fell 2.4%.

  • Meme-stock favorite AMC Entertainment Holdings Inc.
    AMC,
    -2.41%
    late Thursday announced a special dividend in the form of “Ape” preferred shares. AMC shares fell 7.4%.

  • Shares of Twilio Inc. TWLO dropped 14.7% after the software company’s outlook came in below Wall Street expectations following a reported beat in the previous quarter.

  • DoorDash Inc.
    DASH,
    +1.73%
    shares jumped 3.9% after the company late Thursday reported continued growth in the second quarter, saying that its food-delivery business remains healthy despite economic uncertainty, though its loss was worse than what Wall Street expected.

  • Shares of Cloudfare Inc.
    NET,
    +22.75%
    jumped 24% after the cybersecurity company reported results late Thursday that topped Wall Street expectations and hiked its revenue outlook for the year.

  • Beyond Meat Inc.
    BYND,
    +20.26%
    shares jumped 16% after UBS raised its price target. Shares had tumbled in early trade after the maker of plant-based meat substitutes Thursday afternoon posted a larger-than-expected net loss and smaller-than-expected revenues, while announcing layoffs.

  • Block Inc.
    SQ,
    -2.05%
    shares rose 1.4% after the payment-technology company late Thursday swung to a loss and projected that July volume growth for the Square seller business would be lower than what was expected in the second quarter when looking on a year-over-year basis.

  • Carvana Co.
    CVNA,
    +33.24%
    shares jumped 37%, though the used-car retailer missed expectations with its second-quarter revenue and logged a larger loss than analysts were anticipating. The company reported second-quarter sales volume of 117,564, up from 105,185 the previous quarter and 107,815 a year earlier. Shares are down around 80% year to date.

Other assets
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    2.841%
    jumped 17 basis points to 2.845%. Yields and debt prices move opposite each other.

  • The ICE U.S. Dollar Index
    DXY,
    +1.01%,
    a measure of the currency against a basket of six major rivals, rose 0.9%.

  • Bitcoin
    BTCUSD,
    +2.80%
    rose 2.5% to trade above $23,200.

  • The U.S. oil benchmark
    CL.1,
    +2.07%
    erased an early fall to rise 1.8%, pushing back above $90 a barrel, while gold futures
    GC00,
    -0.84%
    were off 0.8% near $1,792 an ounce.

  • The Stoxx Europe 600
    SXXP,
    -0.53%
    fell 0.5%, while London’s FTSE 100
    UKX,
    +0.15%
    was up 0.2%.

  • The Shanghai Composite
    SHCOMP,
    +1.19%
    ended with a gain of 1.2%, while the Hang Seng Index
    HSI,
    +0.14%
    in Hong Kong rose 0.1% and Japan’s Nikkei 225
    NIK,
    +0.87%
    gained 0.9%.

The Associated Press contributed to this report.