U.S. Stocks Pull Back Sharply As Strong Jobs Data Offsets Hopes Of Fed Slowdown

Stocks moved sharply lower during trading on Friday, largely offsetting the rally seen over the course of the previous session. The major averages all showed notable moves to the downside, with the tech-heavy Nasdaq showing a particularly steep drop.

The major averages finished the session near their worst levels of the day. While the Nasdaq plunged 304.16 points or 2.5 percent to 12,012.73, the S&P 500 tumbled 68.28 points or 1.6 percent to 4,108.54 and the Dow slumped 348.58 points or 1.1 percent to 32,899.70.

With the pullback on the day, the major averages all moved lower for the holiday-shortened week. The Dow slid 0.9 percent, the Nasdaq shed 1 percent and the S&P 500 dove 1.2 percent.

Traders cashed in on Thursday’s strong gains, as stronger than expected jobs data offset the faint hopes that the Federal Reserve might slow its planned pace of interest rate hikes.

The Labor Department’s closely watched monthly employment report showed job growth in the U.S. exceeded economist estimates in the month of May.

The report showed non-farm payroll employment jumped by 390,000 jobs in May after surging by an upwardly revised 436,000 jobs in April.

Economists had expected employment to increase by about 325,000 jobs compared to the addition of 428,000 jobs originally reported for the previous month.

Meanwhile, the Labor Department said the unemployment rate remained unchanged at 3.6 percent. The unemployment rate was expected to edge down to 3.5 percent.

The report also showed average hourly earnings rose by $0.10 or 0.3 percent to $31.95 in May. The annual rate of wage growth slowed to 5.2 percent in May from 5.5 percent in April.

“The May employment report underscores Chairman Powell’s view of the labor market still being extraordinarily tight despite some moderation in wage growth,” said Kathy Bostjancic, Chief U.S. Economist at Oxford Economics.

She added, “As such, today’s report supports the Fed raising the fed funds rate by 50bps at each of its June and July meetings.”

A separate report from the Institute for Supply Management showed growth in U.S. service sector activity slowed by slightly more than expected in the month of May.

The ISM said its services PMI dipped to 55.9 in May from 57.1 in April, although a reading above 50 still indicates growth in the sector. Economists had expected the index to edge down to 56.4.

With the bigger than expected decrease, the services PMI dropped to its lowest level since a matching reading in February of 2021.

Sector News

Semiconductor stocks moved sharply lower on the day, giving back ground after turning in some of the market’s best performances on Thursday.

After ending Thursday’s trading at its best closing level in almost a month, the Philadelphia Semiconductor Index plunged by 3 percent.

Profit taking also contributed to considerable weakness among gold stocks, with the NYSE Arca Gold Bugs Index tumbled by 2.3 percent after spiking by 4.9 percent in the previous session.

The pullback by gold stocks came as the price of gold for August delivery slumped $21.20 to $1,850.20 an ounce.

Airline, brokerage and computer hardware stocks also showed notable moves to the downside on the day, while energy stocks bucked the downtrend amid a sharp increase by the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Friday. Japan’s Nikkei 225 Index jumped by 1.3 percent and Australia’s S&P/ASX 200 Index advanced by 0.9 percent, while markets in China and Hong Kong were closed for a holiday.

Meanwhile, European stocks moved modestly lower on the day, with the U.K. markets still closed for the Queen’s Platinum Jubilee celebrations. The German DAX Index and the French CAC 40 Index both edged down by 0.2 percent.

In the bond market, treasuries climbed off their early lows but remained in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose 4.4 basis points to 2.957 percent after reaching a high of 2.986 percent.

Looking Ahead

A report on consumer price inflation is likely to be in focus next week along with reports on the U.S. trade deficit and consumer confidence.

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