Stocks dropped on Thursday as reports revealed stronger-than-expected performance from the U.S. job market.
The Dow Jones Industrial Average dropped by 366.38 points or 1.07 percent to close at 33,922.26. The S&P 500 also lost 0.79 percent to finish at 4,411.59, while the Nasdaq Composite dropped 0.82 percent to 13,679.04.
The session marked the weakest daily performance for the Dow and S&P 500 since May of this year.
Meanwhile, investors are wary that the Federal Reserve might continue its hawkish push to keep interest rates higher amid a strong labor market.
“We don’t see any softening in the labor market,” said Brad McMillan, chief investment officer (CIO) for Commonwealth Financial Network. “The Fed doesn’t have to worry about the jobs market. When you look at their mandate, they have no reason not to keep hiking and to keep hiking for a while.”
Report from ADP Research Institute
According to a report by the ADP Research Institute, private employers added significantly more jobs last month than economists had anticipated. The number of jobs created was nearly double the predicted amount.
The ADP data showed a rise of 497,000 jobs, marking the most significant monthly gain since July 2022. It outperformed the revised May data, which indicated an addition of 267,000 jobs.
However, according to Mike Loewengart, the head of model portfolio construction at Morgan Stanley’s Global Investment Office, the ADP report may not accurately predict the more comprehensive monthly jobs report from the U.S. government scheduled for Friday.
In addition, a couple of contrasting reports were released. One displayed a relatively low number of Americans filing for unemployment, although slightly higher than expected.
Another report from the Labor Department showed fewer job openings than predicted in May, suggesting a potential easing in the tight job market.
Meanwhile, a separate report highlighted strong growth in U.S. service industries during June.
Friday’s jobs report is anticipated to impact Wall Street substantially. If the report presents strength similar to the ADP report, it could result in a decline in the stock market, which can be attributed to the Fed possibly going for a tight monetary policy to address inflation concerns.
This potentially risks a future recession despite the current robust job market preventing an economic downturn.
“Whether it’s that big of a number or even half of that, it would still be showing that the labor market is very strong and the Fed has not done enough to get inflation down,” said Megan Horneman, CIO of Verdence Capital Advisors.
She further noted that it is important to acknowledge that the labor market is a lagging indicator and is more vulnerable to the effects of higher interest rates compared to other parts of the economy.
Additionally, she still anticipates the labor market to weaken and expects a recession to happen within the coming year.
The three major indexes are set to end the week lower. The Dow is expected to decline 1.4 percent for the week, while the S&P 500 and Nasdaq are on track for weekly losses of 0.9 percent and 0.8 percent, respectively.