Stock Finish Friday in the Red, ISM Non-Manufacturing PMI Misses Expectations
Last Updated 4:15PM EST
Stocks finished down in Friday’s trading session, with the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 losing 1.05%, 1.63%, and 2.67%, respectively.
As of 4:15 p.m. EST, crude oil was up 3%, while the U.S 10-year Treasury yield increased 3.5 basis points to 2.948%.
Kohl’s (KSS) was one of the few green spots in today’s sea of red, as two new suitors lined up to acquire it. The stock was trading up as much as 4.3% on the day before heavy selling volume wiped out most of those gains.
Furthermore, the Institute for Supply Management released its monthly report for the ISM Non-Manufacturing Purchasing Managers’ Index, which measures the overall economic condition of the non-manufacturing sector. A number over 50 represents an expansion, whereas anything below 50 signals a contraction. The report came in at 55.9, worse than the expected 56.4, but still expanding.
However, it’s worth noting that this indicator has been slowly downtrending ever since its peak in December 2021, when it hit a high of 69.1. If this trend continues, it might not take long before the non-manufacturing sector enters into contraction.
Average Hourly Earnings Grew Less than Expected
Last Updated 3:00PM EST
Stocks are still down, heading into the final hour of trading. As of 3:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.79%, 1.37%, and 2.41%, respectively.
Investors who may be on the lookout for a wage-price spiral got a sense of relief after the Bureau of Labor Statistics released its Average Hourly Earnings report, which measures the month-over-month change in wages.
A wage-price spiral is caused when the price of goods increases as a result of higher wages but also leads to workers demanding higher wages as a result of the higher prices. As a result, it creates a perpetual loop of price and wage increases.
A way investors can gauge the presence of a wage-price spiral is by comparing average hourly earnings to inflation. If earnings are higher than inflation, it could be a warning sign that the loop is beginning to form.
The good news is that wages grew 0.3% compared to the previous month, below the forecast of 0.4%. The most recent consumer price index grew 0.3% month-over-month, although this was mostly caused by a pullback in energy prices which have since increased again. When looking at the core consumer price index, the last reading was an increase of 0.6% month-over-month.
As a result, it appears that a wage-price spiral is not currently forming, despite the tight labor market.
Unemployment Rate Remains Steady, Elon Musk Considers Cutting Tesla Workforce
Last Updated 12:15PM EST
Stocks are still red halfway into the trading session. As of 12:15 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.99%, 1.65%, and 2.66%, respectively.
Crude oil continued its upward trend as it is now up 1.4%. In addition, the U.S 10-year Treasury yield increased 5.3 basis points to 2.966%.
The unemployment rate, which was released on Friday, remained steady at 3.6% for the third straight month. This was slightly higher than the 3.5% that was expected.
However, labor force participation slightly ticked up from 62.2% to 62.3%. This is a good sign, as it shows that more people are working as a percentage of the total working-age population.
Nevertheless, investors should still be cautious because sentiment from businesses can change very quickly. Indeed, Elon Musk is looking to freeze hiring at Tesla and potentially cut 10% of its workforce. This is because he has a “super bad feeling” about the economy, going forward.
When a very influential business leader speaks, people listen. Elon Musk isn’t the only one with a cautious outlook as he joins Jamie Dimon from JPMorgan Chase in sounding the alarm bells. As a result, it may only be a matter of time before this sentiment spreads to other CEOs, leading to the possibility of higher unemployment rates.
Nonfarm Payrolls Beat Expectations
Last Updated 10:15AM EST
Stocks are in the red after the first 45 minutes of trading. As of 10:15 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.51%, 1.06%, and 1.84%, respectively. On the other hand, crude oil is in the green, up 0.82%, while the U.S 10-year Treasury yield increased 2.4 basis points to 2.937%.
On Friday, the Bureau of Labor Statistics released its Nonfarm Payrolls report, which came in better than expected. This report measures the change in the number of individuals employed during the previous month but doesn’t include the farming industry. In May, job growth was 390,000 versus the forecast of 325,000.
The Bureau of Labor Statistics also released payroll data for government, manufacturing, and private nonfarm jobs. Private nonfarm and government payrolls both beat expectations, coming in at 333,000 and 57,000, respectively. However, manufacturing payrolls missed, as jobs only grew by 18,000 versus the forecast of 40,000.
Excluding government payrolls, the other three reports came in lower than the previous month. This suggests that there may be a slowdown in the economy occurring as the Federal Reserve continues to tighten financial conditions.
Pre-Market Update
Stock futures were under pressure in the early hours of Friday morning as market participants await more updates on the job market later in the day.
Futures on the Dow Jones Industrial Average (DJIA) were down 0.13%, while those on the S&P 500 (SPX) inched 0.23% lower, as of 4.39 a.m. EST, Friday. Meanwhile, the Nasdaq 100 (NDX) futures fell short of the flatline by 0.41%.
On Thursday, Lael Brainard, Vice Chairman of the Federal Reserve, updated CNBC that the central bank is unlikely to be lenient with its monetary policy as a lot still needs to be done to reduce inflation to the 2% target.
At the end of the regular trading session on Thursday, the Dow added 1.33%. Meanwhile, the S&P 500 and the Nasdaq 100 advanced 1.84% and 2.75%, respectively. The rally came after investors scooped up tech stocks, believing them to be attractively valued after the huge sell-off in the past weeks.
However, concerns are far from over. A new ADP report released on Thursday shows that the job creation pace in the U.S. is at its slowest in two years.
In the nonfarm payroll report expected to be released on Friday, economists participating in a Dow Jones survey forecast 328,000 new jobs in May, down around 23% sequentially.
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