Stocks slide as too hot job market erodes pause bets

BLOOMBERG

US stocks slipped after hiring data remained high enough to quash speculation the Federal Reserve would leave interest rates unchanged later this month. The S&P 500 and Nasdaq 100 are on track to end the week lower after data showed a still-resilient labour market, but one that was less robust than implied by the private payrolls report. Tempering any advance in risk assets was faster-than-forecast growth in wages, suggesting inflation remains elevated. The two-year yield slumped to 4.90%.
Stocks on the move intraday included Levi Strauss & Co, which fell sharply after lowering its outlook for the year, and electric-vehicle manufacturer Rivian Automotive Inc, which climbed for the eighth-straight session. The payroll numbers are not yet weak enough, according to Seema Shah, chief global strategist at Principal Asset Management.
“Jobs growth has slowed but remains too strong to justify an extended Fed pause,” she said. “More significantly, with average hourly earnings surprising to the upside, wage pressures are still too strong. Today’s report will give the Fed little reason to hold off from hiking at the July meeting.”
June’s 0.4% wage growth indicates businesses are still desperate to draw in and keep workers, according to Jeffrey Roach, chief economist at LPL Financial. “The latest jobs report all but ensures the Fed will increase rates later this month,” he wrote.
A gauge of the dollar tumbled while gold advanced. Traders added to wagers of more rate hikes after ADP Research Institute data showed US companies added the most jobs in more than a year in June. Stocks have been losing ground in July after a strong first half of the year as hawkishness from central banks from the US to the UK damps hopes of a soft landing for the global economy.
Technology shares have been one of the hottest trades, driven by the buzz around artificial intelligence, but Bank of America Corp strategists said investors who piled into the sector risked being caught off-guard in the selloff sparked by rate hikes.
“We say ‘sell the last hike’ will hit tech hardest,” the BofA team led by Michael Hartnett wrote in a note. But if excitement over AI continues, they said the “baby bubble” that currently exists in a handful of Big Tech shares will mature into a larger one in the second half.
Swap contracts linked to the Federal Reserve’s future policy decisions price in a quarter-point interest-rate hike by July 26 and show a growing likelihood of an additional move by year-end.
Dallas Fed President Lorie Logan voiced her concerns that inflation was still running too hot and more tightening was needed. Policymakers elsewhere share that view, with European Central Bank President Christine Lagarde saying there is still “work to do” to bring inflation under control.