Stocks Close Little Changed as Strong Payroll Report Keeps Fed in Play

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed down -0.08%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.14%. 

Stock indexes Friday settled mixed.  The overall market was under pressure Friday after the U.S June unemployment report showed stronger-than-expected payroll gains and wage growth, which will keep the Fed aggressively tightening monetary policy.   The 10-year T-note yield Friday jumped to a 1-week high of 3.099% on the stronger-than-expected payroll report, which added to equity market weakness. 

A rally in healthcare stocks Friday limited losses in the overall market, while a rally in semiconductor chip stocks for a second day Friday kept the Nasdaq 100 in positive territory.  Also, a +2% jump in Tesla was positive for S&P 500 and Nasdaq 100.

Stock indexes Thursday rallied moderately, with the S&P 500 and Dow Jones Industrials posting 1-week highs and the Nasdaq 100 posting a 1-1/2 week high.  U.S. stock indexes opened higher Thursday on carry-over support from a rally in global equity markets on signs that China may boost stimulus measures, which is supportive of global growth.  China's Ministry of Finance said Thursday that it was considering allowing local governments to sell 1.5 trillion yuan ($220 billion) of special bonds this year to finance infrastructure spending.

Stock indexes extended their gains Thursday afternoon when St. Louis Fed President Bullard downplayed recession fears.

U.S. June nonfarm payrolls rose +372,000, stronger than expectations of +265,000.  The June unemployment rate was unchanged at 3.6%, right on expectations.

U.S. June average hourly earnings rose +5.1% y/y, easing from 5.3% y/y in May and the smallest increase in 6 months, but slightly above expectations of +5.0% y/y.

U.S. May consumer credit rose +$22.347 billion, weaker than expectations of +$30.9 billion.

New York Fed President Williams said inflation is "sky-high" and the top threat to the economy.  He added that the Fed is "strongly committed" to returning inflation to 2% and will watch data to determine how high or fast to hike interest rates.

Atlanta Fed President Bostic said, "the tremendous momentum in the economy to me suggests that we can move rates by 75 bp at the July FOMC meeting and not see a lot of protracted damage to the broader economy."

Today’s stock movers…

Defensive healthcare stocks rallied Friday. Centene (CNC) closed up more than +3%.  Also, Molina Healthcare (MOH) closed up more than +2%.  In addition, Humana (HUM), Elevance Healthcare (ELV), and Cigna (CI) closed up more than +1%.  Finally, UnitedHealth Group (UNH) is up more than +0.8% Friday to lead gainers in the Dow Jones Industrials.

Tesla (TSLA) closed up more than +2% Friday to lead gainers in the Nasdaq 100 after it reported monthly shipments of China-made vehicles surged +145% m/m to a record 78,906. 

A jump of more than +4% in crude oil prices Thursday boosted energy stocks and energy service providers.   APA Corp (APA) closed up more than +7%. Also, Schlumberger (SLB), Diamondback Energy (FANG), Marathon Oil (MRO), Haliburton (HAL), and Devon Energy (DVN) closed up more than +5%.  In addition,  Occidental Petroleum (OXY) and Valero Energy (VLO) closed up more than +4%.

Semiconductor chip makers rose for a second day Friday after Samsung Electronics reported a larger than expected jump in quarterly revenue Thursday, easing concern about weakening consumer demand and soaring material costs.  NXP Semiconductors (NXPI), Microchip Technology (MCHP), Qualcomm (QCOM), and Analog Devices (ADI) closed up more than +1%.  Also, Texas Instruments (TXN), Applied Materials (AMAT), Marvell Technology (MRVL), and Align Technology (ALGN) closed up more than +0.5%.

Twitter (TWTR) closed down more than -5% Friday to lead losers in the S&P 500 on a Bloomberg report that said Elon Musk’s $44 billion proposed takeover of the company was in “serious jeopardy.”

Walgreens Boots Alliance (WBA) closed down more than -1.7% Friday to lead losers in the Dow Jones Industrials after JPMorgan Chase cut its price target on the stock to $45 from $52 on lower expectations for fiscal 2023. 

Illumina (ILMN) closed down more than -2% Friday to lead losers in the Nasdaq 100 after Citigroup cut its price target on the stock to $220 from $325.

Cruise line operators retreated Friday after UBS cut its price target on Carnival to $12 from $23.  Carnival (CCL) closed down more than -3%, and Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH) closed down more than -2%.   

A.O. Smith (AOS) closed down more than -4% Friday after Jeffries said the company’s outlook for commercial water heaters might be too optimistic in light of sales data released by the Air-Conditioning, Heating, and Refrigeration Institute that showed shipments of commercial water heaters in May were down -10% y/y.

Across the markets…

Sep 10-year T-notes (ZNU22) on ThursdayFriday closed down by -2520.5 ticks, and the 10-year T-note yield rose +7.29.5 bp to 3.001090%. Sep T-notes retreated Thursday as a rally in global equity markets reduced safe-haven demand for government debt. T-notes fell to their lows Thursday afternoon on hawkish comments from Fed Governor Waller and St. Louis Fed President Bullard who both said they support a 75 bp rate hike the July FOMC meeting.

Friday’s U.S monthly payroll data showed a stronger-than-expected increase in U.S June nonfarm payrolls and a faster-than-expected increase in U.S. June hourly earnings, which bolstered expectations for the Fed to remain aggressive in tightening monetary policy and is bearish for T-note prices.

T-note prices maintained moderate losses Friday on hawkish comments from New York Fed President Williams said inflation is "sky-high" and the top threat to the economy, and from Atlanta Fed President Bostic, who said he favors a 75 bp rate hike at the July FOMC meeting.

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