Wall Street Spooked by Weak Jobs Report

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A disappointing nonfarm payroll report — featuring an unexpected decline in unemployment as more folks left the workforce and stopped looking for jobs — badly rattled U.S. equities initially. But for the fourth day in a row, large-caps found support below their 50-day moving average to recover into the closing bell. Shares mostly finished lower, but the rebound had an air of calm inevitability.

This tight trading pattern caps a three-month consolidation that, in turn, caps a three-year-long sideways crawl near 18,000 for the Dow Jones Industrial Average. Volatility is just melting away; replaced by severe complacency by investors that the Federal Reserve probably won’t raise interest rates this summer.

In the end, the Dow Jones lost 0.2%, the S&P 500 Index lost 0.3%, the Nasdaq Composite dipped 0.6% and the Russell 2000 finished out the week with a 0.6% loss. Treasury bonds rallied, the dollar took a turn for the worst, gold gained 2.5% on low interest rate expectations and oil was weaker, down 1.5%.

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Financials sold off hard, leading the decliners, as rate hikes expectations (and thus net interest margins expectations) were walked back. The sector lost 1.4% as a group, with insurers off more than 3%.

Troubled retailer Gap Inc (NYSE:GPS) gained 4.1% after posting better sales numbers. Ambarella Inc (NASDAQ:AMBA) gained 9.4% after posting a first-quarter earnings and revenue beat on sales of its HD and 4K camera modules.

May payrolls came in at 38,000 — well below the consensus expectation for a 160,000 gain. Making matters worse, March and April were revised lower by a combined 59,000. The result was the weakest month of job creation in more than five years.

Just let that sink in a moment.

This continues a pattern of oddly mixed economic data. For instance, the government’s report on retail sales was strong, but earnings reports from retailers have been extremely weak. Also odd: The government highlighted the drop in the unemployment rate before reporting the weak payroll number, a change of standard practice.

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Even in today’s jobs numbers, there was some mixed signals. The unemployment rate dropped to a new post-recession low of 4.7% (from 5%), which is normally a good thing. But it was driven by 458,000 people leaving the workforce. No matter the cause, the tightening of the labor market is pushing wage inflation high, with average hourly earnings up 0.2%, in line with estimates.

There was some one-off factors, such as the Verizon Communications Inc. (NYSE:VZ) strike and some possible payback from a strong winter. Yet, the consensus is that the Fed will be hard pressed to move forward with rate hikes later this month or even in July with economic doubts hanging in the air. Bank of America Merrill Lynch reiterated their expectation for action in September at the earliest as market odds of a June hike drop to less than 5%.

All eyes will now be on Federal Reserve Board Chair Janet Yellen’s speech Monday. Any hint of hawkishness, such as a noting of possible one-off factors impacting results, could end the market’s standoff above the Dow’s 50-day moving average.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/stock-market-today-jobs-report/.

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