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Weak ADP Report & Negative Comments

U.S. stocks closed sharply lower on Friday, 3rd June 2022, making it 8 weekly losses out of 9. 

This was a complete reversal from the day before when a weak ADP report sent stocks screaming higher to a level that erased all the losses we experienced in May. 

The decline on Friday started when Reuters reported that Tesla CEO Elon Musk has a “super bad feeling” about the economy and needs to cut about 10% of salaried staff at the electric carmaker, he said in emails to his executives. 

The response was far greater than the “Economic Hurricane” warning from Jamie Dimon, CEO of JPMorgan Chase & Co, at a conference on Wednesday.  

Then, there was the strong jobs report, which added to the risk-off momentum.  

Nonfarm payrolls increased 390,000 last month after a revised 436,000 gain in April, a Labour Department report showed Friday. The unemployment rate held at 3.6%, and the labor force participation rate crept higher. 

The median estimate in a Bloomberg survey of economists called for a 318,000 advance in payrolls and for the unemployment rate to fall to 3.5%.  

For the week, the S&P 500 lost 1.2%, and the Dow Jones and Nasdaq each down by about 1%. 

Here are the closing levels on Friday, 3rd June 2022:- 

 Last   Change   %Change 
Dow Jones 32,899.70. -348.58. -1.05% 
S&P 500 4,108.54 -68.28. -1.63% 
Nasdaq Comp 12,012.73 -304.17. -2.47% 
U.S. 10Y 2.93%   
VIX 24.79 +0.07 +0.28% 

It’s definitely a head-scratcher when the market cares more about comments from Elon Musk than it does for Jamie Dimon. Nevertheless, more negative comments from the likes of Wells Fargo and Goldman Sachs are starting to emerge and should give cause for concern. 

You could spin it around and say that these comments should keep the Feds from being too aggressive and actually be positive for the markets, but with a strong jobs report like the one on Friday, it’s hard to see the Feds backing off.  

Two more 50 basis points hikes at least are predicted with more calls for another 50 after that. 

The silver lining is that the employment situation is strong and with more people working and hopefully spending, a soft landing is possible. This is the case of the Feds and why it must focus on bringing inflation down before it spirals out of control and brings the economy down with it. 

The price action on Friday is negative and the momentum is starting to favour risk off again. All we can be sure of is that there is more volatility ahead of us. 

Source: CBOE, Bloomberg, Reuters 

This commentary is written by James Gomes 
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years. 

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