Stock Market Overview – Stocks Slip on Strong Jobs Data

US stocks rebounded from session lows but settled in the red following the stronger than expected rise in US jobs. The June jobs report came out stronger than expected putting significant upward pressure on US yields which weighed on dividend producing stocks. Traders immediately took out one of the rate cuts that were priced in for 2019, and began to doubt that the Fed would pull the trigger when it next meets in July. President Trump was on the tape today, saying that he believe the Fed should cut rates so the economy would “take off like a rocket ship”. Later in the day news outlets began reporting that President Trump called Fed Chair Powell to discuss interest rates. Trump has spoken with Powell 4-times this year.

Most sectors were lower as the S&P 500 were driven by Healthcare and Industrials, Financials and Energy shares bucked the trend. The selloff in long term yields helped buoy the backs which benefit from a steeper yield curve.

Market Caught Offsides on Strong Payroll Report

US non-farm payrolls came out stronger than expected according to the Department of Labor. The number of the jobs created in June increased by 224,000 jobs which was the best result since January. This compared to expectations that payrolls would increase by 165,000 jobs. The May payroll report was revised slightly lower to 72,000 from 75,000. The unemployment rate edged up to 3.7% as labor force participation rose. Expectations had been for the unemployment rate to remain unchanged at 3.6%. As more people started looking for jobs, the rate moved higher.

Salaries also increased but missed expectations. The average hourly earnings number disappointed, rising 0.2% on a monthly basis against expectations for 0.3% growth. On a year over year basis, wages were up 3.1%, also a notch below market estimates of 3.2% and indicative that wage inflation remains subdued. The average work week was unchanged at 34.4 hours.

The number of discouraged worker and the underemployed saw unemployment rise to 7.2%, still around its lowest level since early 2001. The labor force participation rate increased one-tenth to 62.9%, its best since March. The total labor force increased by 335,000 to just under 163 million while those counted as not in the labor force fell by 158,000 to 96.1 million.

Yields Surge Following the Report

US yields surged following the unexpected increase in the number of jobs that were created. The US ten-year benchmark treasury increased 10-basis points, surging above the psychological level of 2% which it tumbled below earlier in the week.