Stocks Reverse Course as Strong Jobs Data Derails Rate Cut Hopes

For much of last week, stocks continued a rally that appeared headed for another week of gains. However, investors, who had been clinging to the prospect of monetary easing, had those hopes all but dashed after a better-than-expected jobs report doused any hopes of an interest rate reduction in the immediate future. Heading into last Friday, the S&P 500 looked to be on pace for a 10th consecutive week of gains, a feat not achieved since 1985. Instead, a massive selloff, particularly in the tech sector, dragged stocks lower, resulting in each of the major benchmark indexes closing last week in the red. While hiring accelerated, wage growth cooled slightly to 3.4% for the 12 months ended in May, down from 3.6% for the year ended in April and below the consumer annual inflation rate of 3.8%. The strong jobs data not only led to a plunge in stocks but prompted a move to bonds, resulting in long-term yields climbing higher. Among the market sectors, Consumer Discretionary, Information Technology and Communication Services fell the furthest, while Financials, Energy and Health Care saw stocks move higher.

Employment Rises More Than Expected as Labor Market Holds Firm

Total employment exceeded expectations in May after increasing 172,000. This followed the upwardly revised April estimate of 179,000. The change in employment for March was revised up by 29,000, from +185,000 to +214,000, and the change for April was revised up by 64,000, from +115,000 to +179,000. With these revisions, employment in March and April combined was 93,000 higher than previously reported. Last month, the total number of employed increased by 149,000 to 162.8 million. The labor force participation rate was unchanged at 61.8%, while the employment-population ratio ticked up 0.1 percentage point to 59.2%. The total number of unemployed in May was 7.3 million, little changed from the previous month’s total, while the unemployment rate was unchanged at 4.3%.

Eye on the Week Ahead

May inflation data is available this week with the release of the Consumer Price Index and the Producer Price Index. Most recent reports showed inflation has continued to increase.