U.S. stocks give up gains to end lower, book weekly losses after June jobs data

What drove markets

U.S. stocks ended down after a choppy trading session Friday, as investors weighed data showing the number of jobs created in June was the smallest increase in about two and a half years.

The Department of Labor’s employment report on Friday showed the U.S. economy created 209,000 jobs last month, below the 240,000 forecast by economists polled by The Wall Street Journal.

See: Jobs report shows 209,000 gain in June. Smallest increase since end of 2020

The data were taken as a sign that the Federal Reserve’s interest-rate hikes were finally starting to cool the labor market, but other details of the report suggested that the Fed would still face pressure to continue raising interest rates.

“The equity market is in a tricky situation,” said Seb Vismara, global macro economist and strategist at BNY Mellon Investment Management, in a phone interview Friday. “Risks remain to the upside in terms of interest rates.”

The U.S. economy remains “too strong” for core inflation to quickly fall back to 2%, putting pressure on the Fed to keep hiking rates this year and potentially hold them there for longer than anticipated, he said. Although job growth has been “cooling” and openings recently fell, wage growth seen in Friday’s employment report points to households remaining in “quite good shape,” according to Vismara.

“Average hourly earnings grew at a pace that was higher than expected,” he said. “This remains an economy where incomes are growing strongly.”

Average hourly earnings increased 0.4 percent last month for a year-over-year rise of 4.4%, the report shows, while the unemployment rate edged down to 3.6% in June, from 3.7% in May.

“The labor market data did little to dissuade us from the view that the employment dynamic in the U.S. is still solid,” said Rick Rieder, BlackRock’s chief investment officer of global fixed income and head of the firm’s global allocation investment team, in emailed commentary Friday. “The full labor market picture is clearly still running at a decent level and shows little sign of rolling over, even as interest rates move higher and higher.”

Federal-funds futures on Friday afternoon indicated a 92.4% chance of the Fed hiking its benchmark rate by a quarter percentage point in July to a targeted range of 5.25% to 5.5%, according to CME FedWatch Tool, at last check.

Read: Fed’s Goolsbee says job data show labor market is cooling to sustainable pace

The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.956%
has dropped back below 5%, falling 7.3 basis points Friday to 4.931%, according to Dow Jones Market Data. Ten-year Treasury yields
TMUBMUSD10Y,
4.067%
were little changed at 4.047%.

Other analysts noted the U.S. economy’s resilience this year.

“Job growth slowed in June, but the year-to-date increase of 278,000 jobs per month is very strong versus history. In fact, the last time the US created this many jobs per month over a six-month period pre-pandemic was 1999,” said Ronald Temple, chief market strategist at Lazard, in emailed commentary Friday.

“The Fed’s tightening measures are working, but with 1.65 open jobs per unemployed person, wage growth of 0.4% per month, and quit rates at 2.6% per month, there is still work to do to put the inflation genie back in the bottle,” he said. “A hike in July remains my base case as does one additional hike thereafter.”

U.S. stocks have started the second half of 2023 with a pullback, as all three major indexes ended Friday with weekly losses. Still, the S&P 500 has risen 14.6% so far this year, according to FactSet data.

“Stock prices in the first half have already run ahead and discounted a no-recession scenario,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial, in a phone interview Friday. “If we get that, then stocks can move a little higher,” he said. “If we don’t, then I think stocks are in for more volatility in the second half.”

Companies in focus

• Levi Strauss & Co.
  LEVI,
  -7.73%
  shares dropped 7.7% after the jeans maker lowered its outlook for the year, stressing that the bulk of its inventory problems were behind it, but cited lower-than-expected revenue and margin, as well as the strength of the dollar for the cut.

• Costco Wholesale Corp.
  COST,
  -2.29%
  fell 2.3% after the retailer’s June sales edged higher, but comparable-store sales fell 1.4%, including a 2.5% drop for U.S. same-store sales.

• Nikola Corp.’s
  NKLA,
  +8.46%
    stock soared 8.5% after the EV maker said its shareholder meeting was adjourned until Aug. 3 after failure to secure support for a plan to issue new stock.

• Shares of Rivian Automotive Inc.
  RIVN,
  +14.25%
  surged more than 14% in an eighth straight day of gains after Wedbush analyst Dan Ives boosted his share-price target by 20%.

• Alibaba Group Holding Ltd.
  BABA,
  +8.00%
  shares jumped 8% after Reuters reported that Chinese authorities will announce a fine of at least 8 billion yuan (equivalent to $1.1 billion), possibly by Friday, on its Ant Group arm, ending a lengthy regulatory overhaul.