Strong Economic Prints Create Market Selloff
No market indices spent as much as a second in the green today — this morning’s ADP ADP private-sector payrolls results were more than double expectations, which is causing market participants to finally give serious consideration that the Fed may raise rates again at its next meeting on July 25-26, and perhaps again at the following meeting on September 19-20.
This is rolling back equities from June highs is a meaningful way: the Dow was -356 points at the close, -1.04%, while the Nasdaq dropped -113 points, -0.82%. The S&P 500 and small-cap Russell 2000 fell -0.79% and -1.59%, respectively.
The May print for Job Openings and Labor Turnover Survey (JOLTS) came out this morning after the opening bell, with the headline 9.8 million beneath 10 million for the third time in the past four months, and a full half-million lower than the upwardly revised 10.3 million reported for April. These figures are a bit in the rear view, but they do ultimately show an overall downward trajectory from the 11.38 million posted for July of last year.
Job Quits, on the other hand, are back up above 4 million for the first time since December of last year: 4.015 million is up meaningfully from the downwardly revised 3.765 million posted for the previous month. While it looks as though we are well off the peak 4.5 million levels we were seeing back in the first half of 2022, time will tell whether the 3.8 millions per month we’d been experiencing in the first half of this year was the post-Covid low. We’d like to see this number go lower, as employees quitting their jobs depicts something of a seller’s market in the labor force, which carries a potential upward inflation bias, which we know the Fed is determined to continue fighting.
S&P PMI Services for June also came out earlier today, higher than expected to 54.4 from an unchanged 54.1 posted the previous month. ISM Services also bettered expectations to 53.9% for June, a big bounce from the unrevised 50.3% reported a month ago. ISM has only spent one month in the past year sub-50% — the demarcation point between growth and loss — while the S&P numbers remain elevated as they have most of the year to date. Services outperformed Manufacturing prints from these two surveys early this week, which is consistent with strong Services job growth in this morning’s ADP report.
For tomorrow’s Employment Situation report from the U.S. Bureau of Labor Statistics (BLS) and Household Survey, 240K new nonfarm payroll jobs are expected to have been filled last month. This follows May’s surprisingly high 339K reported, which is running counter to economists’ expectations that the labor market shall have cooled off by now. It hasn’t. And ADP’s surprisingly high 497K private-sector jobs filled this morning may be a precursor to a strong headline for BLS tomorrow. That said, ADP and BLS figures are rarely closely aligned in real time; usually it takes a revision or two down the road to bring these numbers together.
But do we expect weak jobs from tomorrow’s report? We do not. Even the Unemployment Rate is expected to tick back down to an historically low 3.6% for June. This would still be higher than the 3.4% from April and January, which matches lows seen immediately preceding the pandemic and not since the late 1960s before then (and consider a moment how different our economy is today than it was back in 1969).
There simply does not seem to be a pullback in workforce numbers across sectors; even those big companies laying off thousands of workers are getting absorbed back into new jobs elsewhere. Which, again, means the Fed is more likely to tighten up interest rates again in the next three weeks.
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