Dow slides after ADP payrolls marks weakest gain since February

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The main U.S. stocks headed lower Wednesday, after a report on private-sector jobs for July came in much weaker than expected, setting the stage for the monthly nonfarm-payrolls report on Friday to disappoint as investors assess the economy’s recovery from COVID-19 amid the spread of the delta variant.

How are stock benchmarks trading?
  • The Dow Jones Industrial Average
    DJIA,
    -0.50%
    slipped 191 points to 34,923, a decline of 0.6%.

  • The S&P 500
    SPX,
    -0.28%
    retreated 14 points, or 0.3%, at 4,409.

  • The Nasdaq Composite Index
    COMP,
    -0.03%
    edged down 7 points, or 0.05%, at 14,754.

On Tuesday, the Dow industrials
DJIA,
-0.50%
climbed 278.24 points, or 0.8%, to 35,116.40, the S&P 500
SPX,
-0.28%
rose 35.99 points, or 0.8%, to a record close of 4,423.15 and the Nasdaq Composite
COMP,
-0.03%
gained 80.23 points, or 0.6%, to 14,761.29.

What’s driving the market?

Stocks were under pressure after a report on private-sector job creation in the U.S. tumbled in July, amid growing concerns about the spread of COVID-19’s delta variant.

The variant is now compelling many U.S. companies to require proof of vaccination as several parts of the country reinstate indoor mask rules. Some are also worried that a wave of delta infections could impact economic recoveries.

The ADP report showed that 330,000 jobs were added last month, missing consensus estimates of economists surveyed by Dow Jones for 653,000 and marking the smallest monthly gain since February. On top of that, the job tally for June was lowered to 680,000 from an initial reading of 692,000.

“The labor market recovery continues to exhibit uneven progress, but progress nonetheless,” wrote Nela Richardson, chief economist at ADP, in a statement. “July payroll data reports a marked slowdown from the second quarter pace in jobs growth.”

The private-sector jobs update comes ahead of Friday’s jobs-market report from the U.S. Labor Department where 845,000 jobs are anticipated and the unemployment rate is projected to fall to 5.7% from 5.9%.

The ADP report is seen as key to gauging how fast the labor market is working toward the Federal Reserve’s policy goal of “substantial” progress that could trigger a tapering of its bond-buying program, said Ipek Ozkardeskaya, senior analyst at Swissquote, in a note to clients.  

If the Labor Department’s report falls short of expectations on Friday as well, the market could take it as a signal that the Fed will maintain its easy monetary policy for longer than previously expected. Fed Chairman Jerome Powell has cited labor-market weakness as the primary reason for continuing large-scale asset purchases and maintaining a near-zero fed-funds rate.

However, a report on the U.S. service sector came in better than expected, offering some expectation that labor-market data on Friday may be OK, even if businesses are facing challenges from the delta variant and coping with widespread labor and supply shortages.

A survey of service-oriented businesses rose to 64.1 in July from 60.1 in the prior month and hit the highest level on record, the Institute for Supply Management said Wednesday. The nonmanufacturing report came after IHS Markit’s final read of U.S. services for July came in at 59.9, compared with an initial reading of 59.8. A reading of 50 or better implies improving conditions.

Meanwhile, in remarks to the Peterson Institute for International Economics, Federal Reserve Vice Chairman Richard Clarida said the economy is likely to continue to grow so that the labor market heals and inflation averages above 2% by the end of 2022, allowing the U.S. central bank to begin raising interest rates in 2023.

Clarida said he expects inflation to be above 2.1% rate in 2022 and 2023, which would satisfy the Fed’s condition for inflation above 2% for some time.

Seven Fed officials have forecast the first rate in in 2022. The Fed’s so called dotplot forecast projects a majority of the 19 top officials see two interest rate hikes by the end of 2023.

Which companies are in focus?
  • Zymergen
    ZY,
    -75.88%
    shares tumbled 77% after the synthetic biology company reported troubles for its key product and said its chief executive would exit. The company made its public debut in April.

  • Activision Blizzard
    ATVI,
    +2.02%
    shares climbed 1.4% after the videogames maker’s results topped Wall Street forecasts and executives pledged a “zero-tolerance harassment policy,” amid staff allegations of a sexist work environment.

  • Shares of Royal Caribbean Group RCL fell nearly 3% Wednesday, putting them on track for a seventh straight loss, after the cruise operator reported a wider-than-expected second-quarter loss and revenue that fell well below expectations, as cash burn increased from the previous quarter as additional ships returned into operation.

  • New York Times Co. shares NYT jumped 7% Wednesday, after the newspaper group beat earnings estimates for the second quarter, as subscription and ad revenues gained.

  • Scotts Miracle-Gro Co. SMG shares fell over 4% after the lawn and garden care company reported fiscal third-quarter earnings that beat expectations and announced an acquisition. 

  • General Motors Co. GM reported Wednesday second-quarter earnings that beat expectations, as revenue more than doubled, and raises its full-year profit outlook, although that outlook remained below the FactSet consensus. Shares were diwb 6.9%.

  • Tupperware Brands Corp. TUP stock rose over 7% in Wednesday premarket trading after the container and consumer products company reported second-quarter earnings that blew past estimates.

  • Shares of Robinhood Markets Inc.
    HOOD,
    +25.99%
    was up 71% on the Nasdaq Inc., after being halted for volatility. The surge comes less than a week after its debut as a publicly traded company and also puts the trading platform well above its first trade last week at $38.

How are other assets faring?
  • The 10-year Treasury note yield
    TMUBMUSD10Y,
    1.200%
    rose to 1.20% from a intraday low of around 1.13%. Bond prices fall as yields rise.

  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was rising 0.1%.

  • Oil futures trade lower, with the U.S. benchmark CL00 off 2.1% at $69.07 a barrel. Gold futures GC00 traded flat at $1,813.20 an ounce.

  • In European equities, the Stoxx Europe 600 SXXP rose 0.7%, attempting to extend its record run-up, while London’s FTSE 100 UKX was trading 0.4% higher.

  • In Asia, the Shanghai Composite SHCOMP advanced 0.9%, while the Hang Seng Index HSI closed down 0.9% higher in Hong Kong and Japan’s Nikkei 225 NIK, declined 0.2%.

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