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The stock market has looked pretty invincible for the better part of the past two months. Yesterday was no exception, as the S&P 500 climbed to its best levels since March in the wake of reduced growth forecasts out of the OECD and Elon Musk calling the one big, beautiful bill a "disgusting abomination."
The major indices closed near their best levels of the session, powered by small-cap stocks and mega-cap stocks. There isn't as much power in the early going today. A weaker-than-expected ADP Employment Change Report pulled the plug on the charge seen in the equity futures market ahead of the 8:15 a.m. ET release.
Briefly, ADP said private sector employment increased by 37,000 in May (Briefing.com consensus 115,000) following a downwardly revised 60,000 (from 62,000) in April. The goods-producing sector saw a loss of 2,000 jobs, while the service-providing sector saw an increase of 36,000. Mid-sized firms added 49,000 jobs, but small firms shed 13,000 jobs, and large firms saw a loss of 3,000 jobs.
The report, which comes ahead of the more influential Employment Situation Report on Friday, stirred some growth concerns that led to some knee-jerk selling interest in the equity futures market and some impulse buying in the Treasury market. It also stirred a post from President Trump, who again chastised Fed Chair Powell for being "too late" and urged him to cut rates.
Currently, the S&P 500 futures are flat and are trading in line with fair value, the Nasdaq 100 futures are flat and are trading in line with fair value, and the Dow Jones Industrial Average futures are down 27 points and are trading roughly in line with fair value.
That isn't the look of a market that is overly concerned by the data. It would be remiss not to add that year-over-year growth for job-stayers was little changed at a healthy 4.5% and that pay for job-changers was unchanged at an even better 7.0%. Moreover, there has been a slowdown in hiring, not a contraction in hiring. In other words, the labor market continues to exude a posture that is supportive of growth, as opposed to a recession.
There is some slowing, though, that needs to be acknowledged, and that could lend itself to valuation concerns for stocks, which have been on a tear. Then again, it might also lend itself to the market thinking the Fed will cut rates, and few things calm the market's nerves more than the idea of rate cuts.
The 2-yr note yield, which is sensitive to changes in the fed funds rate, was at 3.97% just before the release but now sits at 3.92%, down four basis points from yesterday's settlement. The 10-yr note yield, at 4.46% in front of the release, has dropped to 4.40%, down six basis points from yesterday's settlement.
The probability of at least a 25-basis-point rate cut at the July FOMC meeting increased to 27.7% from 24.4% yesterday, but the September FOMC continues to be the odds-on favorite for the next 25-basis-point cut by the Fed. That could change if Friday's employment report is a big disappointment that includes a bump in the unemployment rate, but the market will be forced to wait on that data.
For now, the market, backed by a lot of price momentum, might see the soft ADP number, Needham's downgrade of Apple (AAPL) to Hold from Buy, CrowdStrike's (CRWD) relatively disappointing revenue guidance, and President Trump's acknowledgment that President Xi is "very tough and extremely hard to make a deal with" as a basis for a consolidation trade -- or not.
