Stock Market News for Jul 8, 2019

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Wall Street closed lower on Friday despite robust job additions from the U.S. economy in June. Investors’ fears that strong labor market data will delay rate cut by the Fed which is scheduled to meet on July 30-31,led to these losses. All three major stock indexes finished in the red. However, for the week as a whole, all three indexes posted solid gains.

The Dow Jones Industrial Average (DJI) dropped 0.2% to close at 26,922.12 The S&P 500 also declined 0.2% to close at 2,990.41. Meanwhile, the Nasdaq Composite Index closed at 8,161.79, shedding 0.1%. The fear-gauge CBOE Volatility Index (VIX) increased 5.7% to close at 13.28. A total of 5.08 billion shares were traded on Friday, lower than the last 20-session average of 6.8 billion. Decliners outnumbered advancers on the NYSE by a 1.18-to-1 ratio. On Nasdaq, a 1.15-to-1 ratio favored advancing issues.

How Did The Benchmarks Perform?

The Dow closed in negative territory, reversing a four-day winning streak with 19 components of the 30-stock blue-chip index closing in the red while eleven finished in the green. The S&P 500 also closed in negative territory snapping five-day winning run. The Heath Care Select Sector SPDR (XLV) lost 0.7%. Notably, seven out of 11 sectors of the benchmark index closed in the red while four ended in the green. The Nasdaq Composite ended in the red after six-days of rally due to weak performance by semiconductor stocks.

Robust Labor Market Data for June

On Jun 5, the Department of Labor reported that the U.S. economy added 224,000 compared with a revised 72,000 in May,exceeding consensus estimate of 161,000. The U.S. economy has added 172,000 jobs per month on average in the first half of 2019. The unemployment rate edged up from 3.6%to 3.7%. However, the rise is mainly due to a 0.1% increase in labor force participation rate to 62.9%, highest since March. The real unemployment rate marginally increased from 71% to 7.2%.

Professional and business services, health care, transportation and warehousing and construction added 51,000, 35,000, 24,000 and 21,000 jobs respectively. However, the surprise element was the manufacturing sector, which added 17,000 jobs, far ahead of its first five-month average of 8,000 jobs.

Hourly average wage rate grew 0.2% or $0.06 to $27.90 in June. However, the consensus estimate was for a growth of 0.3%. May’s hourly wage growth rate was also revised upward to 0.3% from 0.2% stated earlier. Meanwhile, year over year, the hourly average wage rate grew by 3.1% in June, Average workweek came in at 34.4%, flat with May.

Concerns Over Fed Rate Cut in July

According to CME Fedwatch, after the declaration of June’s data for labor market data, probability for a quarter percentage rate cut  by the Fed in July dropped to 94% from the earlier level of 100%. Similarly, probability of a half a percent rate cut in July declined to 6% from 25%.

Despite maintaining a dovish monetary stance and signaling monetary easing in 2019, Fed is yet to reveal when it will cut rates. On Jun 25, Jerome Powell said that the central bank will take a wait-and-see approach to monitor how fast economic conditions are changing in recent times. The central bank also reaffirmed its view that inflation will rise to 2% although it may take more time. Therefore, a rate cut in July cannot be taken for granted.

Notably, Fed chair Jerome Powell will be testifying before the House Financial Services Committee on Jul 10 and at the Senate Banking Committee on Jul 11. The investors will closely watch his comments to find out a clue on rate cut in July.

Meanwhile, yield on benchmark 10-year U.S. Treasury Notes regained its crucial 2% level and closed at 2.05% increasing from 1.93% on Jul 4. Higher yield on government bonds and lower expectation of a rate cut in July bodes well with banking stocks.

Consequently, shares of major banks like JPMorgan Chase & Co. JPM , Bank of America Corp. BAC and Citigroup Inc. C gained 0.6%, 0.7% and 0.8%, respectively. All three stock carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .

Weekly Roundup

U.S. stocks performed impressively in the first week of July. All three major stock indexes — the Dow, S&P 500 and Nasdaq Composite — gained 1.2%, 1.7% and 1.9%, respectively. Last week’s rally was primarily influenced by strong expectations of rate cut by the Fed in July. Moreover, the resumption of trade talks between the United States and China also boosted investors’ confidence. Notably, the two sides agreed not to impose further tariffs on each other at least for the time being.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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