Dow turns higher, still on track for weekly loss after June jobs data

What’s driving markets

U.S. stocks were trading higher Friday afternoon, as investors weighed data from the Labor Department showing the number of jobs created in June was the smallest increase in about two and a half years.

The Department of Labor’s employment report on Friday showed the U.S. economy created 209,000 jobs in June, below the 240,000 forecast by economists polled by The Wall Street Journal.

See: Jobs report shows 209,000 gain in June. Smallest increase since end of 2020

The data were taken as a sign that the Federal Reserve’s interest-rate hikes were finally starting to cool the labor market, but other details of the report suggested that the Fed would still face pressure to continue raising interest rates.

“The equity market is in a tricky situation,” said Seb Vismara, global macro economist and strategist at BNY Mellon Investment Management, in a phone interview Friday. “Risks remain to the upside in terms of interest rates.”

The U.S. economy remains “too strong” for core inflation to quickly fall back to 2%, putting pressure on the Fed to continue hiking rates this year and potentially hold them there for longer than anticipated, he said.

Job growth has been “cooling” while openings recently fell, but wage growth seen in Friday’s employment report points to households remaining in “quite good shape,” according to Vismara.

“Average hourly earnings grew at a pace that was higher than expected,” he said. “This remains an economy where incomes are growing strongly.”

Average hourly earnings increased 0.4 percent last month for a year-over-year rise of 4.4%, the report shows, while the unemployment rate edged down to 3.6% in June, from 3.7% in May.

“The labor market data did little to dissuade us from the view that the employment dynamic in the U.S. is still solid,” said Rick Rieder, BlackRock’s chief investment officer of global fixed income and head of the firm’s global allocation investment team, in emailed commentary Friday. “The full labor market picture is clearly still running at a decent level and shows little sign of rolling over, even as interest rates move higher and higher.”

Federal-funds futures on Friday afternoon indicated a 92.4% chance of the Fed hiking its benchmark rate by a quarter percentage point in July to a targeted range of 5.25% to 5.5%, according to CME FedWatch Tool, at last check.

“The latest jobs report shows an economy transitioning to a lower cruising speed,” said Bernard Baumohl, Chief Global Economist, The Economic Outlook Group. “There is still nothing to suggest a recession is near or that wage inflation is accelerating. “

The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.952%
has dropped back below 5%, down eight points at around 4.93% on Friday afternoon, according to FactSet data, at last check. The yield on the 10-year Treasury note
TMUBMUSD10Y,
4.042%
was little-changed at about 4.05%.

Other analysts noted the U.S. economy’s resilience this year.

“Job growth slowed in June, but the year-to-date increase of 278,000 jobs per month is very strong versus history. In fact, the last time the US created this many jobs per month over a six-month period pre-pandemic was 1999,” said Ronald Temple, chief market strategist at Lazard, in emailed commentary Friday.

“The Fed’s tightening measures are working, but with 1.65 open jobs per unemployed person, wage growth of 0.4% per month, and quit rates at 2.6% per month, there is still work to do to put the inflation genie back in the bottle,” he said. “A hike in July remains my base case as does one additional hike thereafter.”

U.S. stocks have started the second half of 2023 with a pullback, with all three major U.S. equity indexes heading for a weekly loss on Friday afternoon. Still, the S&P 500 has risen more than 15% so far this year, according to FactSet data, at last check.

Companies in focus

• Levi Strauss & Co.
  LEVI,
  -6.18%
  shares fell after the jeans maker lowered its outlook for the year, stressing that the bulk of its inventory problems were behind it, but cited lower-than-expected revenue and margin, as well as the strength of the dollar for the cut.

• Costco Wholesale Corp.
  COST,
  -1.37%
  dropped after the retailer’s June sales edged higher, but comparable-store sales fell 1.4%, including a 2.5% drop for U.S. same-store sales.

• Nikola Corp.’s
  NKLA,
  +11.11%
    stock jumped after the EV maker said its shareholder meeting was adjourned until Aug. 3 after failure to secure support for a plan to issue new stock.

• Shares of Rivian Automotive Inc.
  RIVN,
  +16.37%
  were surging, heading for an eighth straight gain after Wedbush analyst Dan Ives boosted his share-price target by 20%.

• Alibaba Group Holdings Ltd.
  BABA,
  +9.09%
  shares jumped after Reuters reported that Chinese authorities will announce a fine of at least 8 billion yuan (equivalent to $1.1 billion), possibly by Friday, on its Ant Group arm, ending a lengthy regulatory overhaul.

Steve Goldstein contributed to this report.