Labor Data Sparks Fears of Rate Hike: Wall Street Slides in Response

On July 6th, Wall Street experienced a significant decline due to a surge in U.S. treasury yields following data indicating a resilient labor market. The market was concerned that this could lead the Federal Reserve to maintain higher interest rates for an extended period.

The ADP National Employment report revealed that private payrolls increased more than expected in June, suggesting that the labor market remained robust despite the risks of a recession resulting from higher interest rates.

As a result of this data, the yield on the 10-year U.S. treasury note, which serves as an indicator of interest rate expectations, rose. Additionally, the work on the two-year Treasury note reached its highest level since June 2007.

Although a separate report showed a drop in job openings in May, indicating a potential decrease in labor demand, the level remained elevated despite the Federal Reserve's previous rate hikes totaling 500 basis points.

David Russell is a Vice President of Market Intelligence at Trade Station, noted that the market was realizing that no relief from the job market could prompt the Fed to pause rate hikes again in July. He added that the Fed could now focus on addressing inflation without concerns about employment.

U.S. interest rate futures indicated an increased probability of another rate hike by the Federal Reserve in November. Traders factored in a 47% chance during mid-day trading, compared to 36% the day before, according to CME's FedWatch.

Dallas Fed President Lorie Logan, a Fed's rate-setting committee voting member, stated that raising rates at the June policy meeting would have been entirely appropriate.

At 12:02 p.m. The Dow Jones Industrial Average was down 449.43 points, or 1.31%, at 33,839.21. The S&P 500 showed a decline of 49.55 points, or 1.11%, at 4,397.27, and the Nasdaq Composite dropped 174.97 points, or 1.27%, at 13,616.68.

U.S. bank stocks also fell, and the KBW Regional Banking Index reached a near-two-week low. Lingering concerns about the health of lenders following the crisis in regional banks, along with anticipation of second-quarter results starting next week, impacted investor sentiment.

Meta Platforms slipped 0.2% but outperformed its peers after launching its Threads app, which attracted millions of users within hours. Exxon Mobil eased 4.0% after signaling a sharp drop in second-quarter operating profit due to easing natural gas prices and oil refining margins.

JetBlue Airways fell 6.4% after announcing that it would comply with a U.S. judge's order to end an alliance with American Airlines to protect its planned $3.8 billion purchase of Spirit Airlines.

On the NYSE, declining issues outnumbered advancers in a ratio of 10.69-to-1, while on the Nasdaq, the ratio was 5.32-to-1.

The S&P index recorded one 52-week high and two new lows, while the Nasdaq recorded 15 new highs and 92 new lows.