Stock index futures fall after June jobs report

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(Friday Market Open) The long-awaited report on the unemployment situation in June finally arrived this morning, but judging by the immediate slowdown in S&P 500 futures, investors did not get what they wanted.

Market potential movers

In June, the economy added 372,000 jobs last month, well above the estimate of 268,000. Average hourly wages were in line with expectations but lower than the previous month and the unemployment rate fell is maintained at 3.6%.

Take-out? There is little in today’s numbers to suggest the Federal Reserve will scale back its current plans for aggressive rate hikes to rein in inflation. In fact, the 10-year Treasury yield (TNX) traded higher on the news, indicating that bond buyers are expecting further rate hikes as well.

The only negative element of the employment report was the participation rate. It fell in June, suggesting some workers aren’t seeing the incentives they need to stay in the workforce. This may be due to wages not keeping up with inflation.

Meanwhile, the deal to buy Elon Musk Twitter TWTR appears to be in jeopardy due to Musk’s team’s inability to confirm spam account numbers, according to The Washington Post. These numbers count for their impact on Twitter’s ability to sell advertising on its platform. Twitter’s management team was unable or unwilling to provide the “true” number, Job said, causing Musk to put his $44 billion deal on hold.

While the Twitter deal is in limbo, Elon Musk You’re here (NASDAQ: TSLA) reported that its shipments to China set a record as its Chinese factory reopened following the country’s COVID-19 restrictions. Tesla shipped 78,906 vehicles last month, more than double the 33,155 in the same period a year ago.

General Engines GM hasn’t been able to keep pace with Tesla selling vehicles in China, the world’s largest auto market. GM saw vehicle sales drop 35.5% in June year-on-year (YOY) in China, while Tesla saw an 18% decline. GM said its auto sales fell due to a shortage of computer chips and continued Chinese pandemic lockdowns.

Mastercard SpendingPulse, which measures in-store and online retail sales for payment types, U.S. retail consumer spending grew 9.5% year-on-year excluding auto sales. Sales rose 6.1% year-on-year excluding autos and gasoline. However, the figures are not adjusted for inflation, which means that much of the growth could be due to higher prices. The report showed that investors are also turning to brick-and-mortar stores, with in-store spending up 11.7% year-on-year, while e-commerce grew just 1. 1% over the same period.

Levi Strauss LEVI appears to be recording some of those sales because the company beat its revenue and earnings numbers after the market closed on Thursday. The news prompted shares to rebound more than 4% in premarket trading.

However, WD-40 WDFC missed on earnings and revenue, sending the stock down 9.7% before the opening bell.

Costco COST appears to be benefiting from consumers moving to cheaper alternatives for the things they need, as its June sales report was higher than expected. Even removing its gasoline sales boost, Costco still saw an increase in same-store sales. COST rose 0.80% in the premarket action.

Consumers could stick with cash as a consumer finance company Reached (UPST) fell 17% in premarket stock after it released its preliminary earnings estimates that were below analysts’ expectations.

Market Minutes Review

Stocks gained on Thursday, led by the Nasdaq ($COMP), which jumped 2.28% on the strength of a rally in semiconductors that PHLX Semiconductor Index (SOX) higher by 4.48%. Samsung gave the group a big boost after announcing an 11% increase in profits and a 21% jump in sales thanks to strong memory chip sales. Advanced micro-systems (AMD) and Qualcomm (QCOM) respectively traded more than 5% higher on the news.

Yesterday’s rally was triggered by weakness in the hot job market. At the start of the session, the Challenger Jobs Cuts report noted a significant increase in corporate layoffs and initial jobless claims in the United States rose to their highest level since January. The weak numbers gave investors reason to believe that the Fed might not need to be so aggressive in its rate hikes later this month.

The S&P500 (SPX) and the Dow Jones Industrial Average ($DJI) closed up 1.5% and 1.1% on the day. Unlike previous rallies this week, these gains had some momentum, with NYSE risers outpacing decliners by more than 3 to 1. In fact, the Russell 2000 (RUT) The small cap index climbed 2.43%, further reflecting this direction.

All sectors except utilities were positive on the day, with energy finishing in the lead. The Energy Selection Sector Index increased by 3.56% thanks to a rebound in energy prices. WTI Crude Oil Futures, natural gas futuresand unleaded gasoline futures settled 4%, 13.6% and 7% more for the trading session.

The 10-year Treasury yield (TNX) also continued its climb, gaining another 10 basis points to 3.01%. However, the 2-year Treasury yield rose 9 basis points to 3.03%, keeping the 2s10 spread reversed for the third straight day.

CHART OF THE DAY: WIDE SLICE. The Wilshire 5000 Total Market Index (W5000 — candlesticks) has fallen more than 14% in the past 12 months, exceeding the 10% drop in the S&P 500 (SPX — blue). Meanwhile, the Russell 2000 (RUT—rose) lost 21% over the same period. These three indices show how wide the bear market has been, confirmed by the NYSE Advance/Decline Line (green/red). Data sources: ICE, S&P Dow Jones indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Three things to watch out for

Amplitude & Circuses: When looking for a market bottom, it’s easy to get caught up in the daily market swings and financial headlines that are so often inflated beyond their true significance. This is why analyzing the scope of the market can help long-term investors determine whether a change is taking place or not.

Before the S&P500 (SPX) started a bearish trend at the beginning of the year, the rise/fall line of the NYSE and the Russell 2000 (RUT) had already started to descend. Indeed, a “flight to quality” often precedes a downtrend in the market. Many investors were actually looking to blue chip and large and mega-cap stocks which historically have held up better on market declines.

Risk enabled: Here’s another good reason to watch market breadth – market dips can form when a larger market breadth emerges. At this point, many investors are willing to take on more risk by turning to smaller companies like those in the Russell 2000. A bear market and/or recession will often shake up small companies that were not well managed or lacked a product or service that consumers appreciate. Those who stay are usually lean and mean and poised for growth when the economy recovers. Watching small company stocks during a downturn is one of many factors when trying to identify a market bottom.

Tops and bottoms: Another commonly used measure of magnitude is to compare the number of stocks that create new highs versus those that create new lows. Throughout June, the NYSE reported that the number of stocks hitting new three-month highs versus hitting new three-month lows ranged from 60 to 1,150. As of July 5, the ratio was from about 22 to 215. Year-to-date, the number of stocks hitting new three-month lows has far exceeded the number hitting new highs and there are currently no signs of a change.

Judging by the new highs and lows, the advance/decline line and the trends of the Wilshire 5000, S&P 500 and Russell 2000, the magnitude still looks quite small. So keep watching.

Notable Calendar Items

July 12: PepsiCo Earnings DYNAMISM

July 13: June Consumer Price Index (CPI) and Progressive Earnings RPGFastenal QUICKand Delta Airlines DAL

July 14th : Taiwan Semiconductor’s Producer Price Index (PPI) and Revenue TSMJPMorgan Chase JPMMorgan Stanley MRScintas ETGand ConAgra GAC

July 15th : UnitedHealth retail sales and revenue A HWells Fargo WFCblack rock noirCitigroup VSand American bank USB.

July 18: Bank of America Earnings BACIBM IBMand Goldman Sachs GS
TD Ameritrade® Commentary for educational purposes only. SIPC member.

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