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Markets Dip on Inflation Fears Despite Strong Jobs Report


Markets Dip on Inflation Fears Despite Strong Jobs Report

US stocks ended the day mostly lower on Friday, June 7th, 2024, in a volatile session. This came after the release of a stronger-than-expected jobs report from the US Department of Labor. 

Impact of Jobs Report 

The jobs report indicated a robust labor market, with Nonfarm Payrolls exceeding analyst expectations. This data point is crucial for the Federal Reserve’s monetary policy decisions. 

While a strong labor market is generally positive news, it caused uncertainty in this instance. A strong labor market could influence the Fed to maintain or even raise current interest rates to combat inflation, making stocks less attractive to investors. 

Market Reaction 

Treasury yields, which influence borrowing costs for companies and consumers, jumped following the jobs report, further impacting investor sentiment. 

Some sectors, particularly technology, were hit hard by the market’s decline. GameStop, a meme stock in the spotlight, plunged significantly after announcing plans to sell more shares. 

Overall, the US stock market reacted negatively to the strong jobs report on Friday, as investors weighed the potential impact on future interest rate decisions. 

Weekly Performance of Major Indexes 

Despite Friday’s decline, all three major stock market indexes posted a winning week: 

S&P 500: +1.3% 

Dow Jones: +0.3% 

Nasdaq Composite: +2.4% 

Closing levels on Friday: 

Index Close Change % Change 
DOW JONES 38,798.99 -87.18 -0.22%  
S&P 500 5,346.99 -5.97 -0.11% 
NASDAQ 17,133.13 -39.99 -0.23% 
US 10Y 4.434   
VIX 12.22 – 0.36 -2.86% 

Interest Rate Speculations 

The swap market is now pricing in only a 50% chance of a rate cut in September, down from 70%. The likelihood of a second rate cut in December has also dropped to 50%.

US central bankers are meeting next Tuesday and Wednesday and are still widely expected to leave the policy rate in the current 5.25%-5.5% range, where it has been since last July. 

The market seems convinced that there is no way but up; however, this could change if the Fed’s dot plot shows fewer than two cuts this year. The dot plot announcement will be closely watched and is likely to cause more volatility. 

Investor Sentiment 

Despite any negative news, investors have continued to pile on stock buying. While there may be knee-jerk reactions, it wouldn’t be surprising if selloffs are met with dip buying. 

Many analysts have been calling for a 5% or 10% pullback, as the markets seem overconfident. However, unless we see follow-through selling, the bull trend is likely to continue. 

Source: CBOE, Bloomberg 

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years. 

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