Stocks experienced a turbulent trading session on Wednesday as investors grappled with disappointing economic indicators and a notable drop in Treasury yields. The ADP National Employment Report released prior to market opening revealed that private sector employers added merely 37,000 jobs in May, significantly lower than the 110,000 economists had anticipated and marking the weakest job creation figure since March 2023. Nela Richardson, the chief economist at ADP, commented, “After a strong start to the year, hiring is losing momentum.” While hiring showed signs of fatigue, pay growth remained resilient, holding steady at robust levels for both employees retaining their jobs and new hires.
This lukewarm report set the stage for the forthcoming U.S. government jobs report, expected to be released on Friday, which is projected to show an increase of 125,000 nonfarm payrolls for the month of April. Job growth has been a critical support pillar for the U.S. economy, according to Scott Helfstein, head of investment at Global X. He noted that this upcoming report would be particularly significant in assessing the tension between hard economic data and high-frequency survey indicators that have been conflicting recently.
In an unexpected twist, the weak labor market data could incite renewed criticism from former President Donald Trump towards Federal Reserve Chair Jerome Powell. Following the lower-than-expected ADP figures, Trump took to Truth Social, expressing his discontent: “ADP NUMBER OUT!!! ‘Too Late’ Powell must now LOWER THE RATE.” This sentiment reflects the heightened scrutiny of the Federal Reserve’s policies amid pressures surrounding inflation and economic growth.
Futures traders appear to be maintaining a steady outlook despite the weak data. According to the CME Group’s FedWatch Tool, there are elevated expectations that the Federal Reserve could implement a quarter-point rate cut in its September meeting, a move that reflects ongoing debates about monetary policy in the current economic landscape.
In another troubling sign for the economy, the Institute for Supply Management (ISM) reported that its Services Purchasing Managers Index (PMI) unexpectedly fell to 49.9% in May, down from 51.6% in April, indicating a contraction in activity within the services sector. This decline marks the first contraction since June 2024, signaling a potential slowdown in economic momentum. Steve Miller, chair of the ISM Services Business Survey Committee, explained that while the drop is not indicative of a severe recession, it reflects growing uncertainty among businesses. He noted that the average PMI reading of 50.8% over the past three months suggests some level of expansion, but it is considerably lower than the previous average of 52.8% over the past nine months.
The disheartening economic data had immediate repercussions in the bond market, with Treasury yields declining significantly. The yield on the 2-year note decreased by 9.1 basis points to 3.866%, while the yield on the 10-year note fell by 10.5 basis points to 4.355%, marking its most significant one-day drop since mid-April.
As for the major stock indexes, the S&P 500 finished fractionally higher at 5,970, and the Nasdaq Composite gained 0.3% to close at 19,460. In contrast, the Dow Jones Industrial Average saw a decline of 0.2% to settle at 42,427, affected largely by downturns in Chevron and Travelers Companies, both of which fell 1.5%.
In corporate news, CrowdStrike Holdings experienced a notable decline of 5.8% following the release of its fiscal first-quarter earnings, which reported a loss of $110.2 million compared to a profit of $42.8 million in the same period last year. The loss was attributed to ongoing expenses related to a widespread software outage experienced the previous summer. However, adjusted earnings, which exclude one-time expenses, came in at $184.7 million, or 73 cents per share, surpassing analysts’ expectations of 66 cents per share. Despite this, CrowdStrike’s revenue of $1.10 billion fell short of projections, and the company also lowered its revenue guidance for the upcoming fiscal quarter. Following the earnings report, BofA Securities analyst Tal Liani downgraded the stock from Buy to Neutral, citing an attractive fundamental outlook but expressing concerns about the stock’s limited upside potential.
In contrast, Constellation Energy experienced a drop of 4.3% after Citi Research analyst Ryan Levine downgraded its rating from Buy to Hold, although he raised the price target to $318, reflecting a modest implied upside of just 6% based on the stock’s closing price. This downgrading came shortly after Constellation announced a significant 20-year agreement to supply nuclear energy to Meta Platforms, the parent company of Facebook. Levine remarked that the current stock price already reflects the excitement surrounding Constellation’s partnership with major technology firms, including Meta and Microsoft. With shares up 44% year over year, Levine expressed concerns regarding the risks associated with the company’s exposure to volatile commodities such as gas, uranium, and oil.
The swirling currents of economic data and corporate performance present a complex picture for investors. As central banks and government entities navigate the ramifications of this data, market participants remain vigilant, closely monitoring upcoming announcements and indicators that may influence the direction of both fiscal policy and the broader economic landscape. The uncertain terrain suggests that investors must remain adaptable, particularly in an environment characterized by fluctuating market conditions and evolving economic signals. The interplay between labor market trends, monetary policy, and corporate performance will be pivotal in shaping investment strategies in the coming months.