Stocks Fall After a Solid Jobs Report

3:11 pm Friday, August 05th, 2022

Wall Street stocks fell on Friday, weighed down by Tesla and other technology-related stocks after a solid jobs report torpedoed recent optimism that the Federal Reserve might let up its aggressive campaign to reign in decades-high inflation.

There is more strength in the market, however, than index level performance suggests. Small and mid cap stocks are holding up relatively well with the Russell 2000 (+0.3%) and S&P Mid Cap 400 (+0.1%) both trading up while the three main indices trade in the red. The drag downward has been underperforming growth stocks and mega caps.

The Vanguard Mega Cap Growth ETF (MGK) is down 0.9% versus a 0.2% loss in the Invesco S&P 500 Equal Weight ETF (RSP) and a 0.4% loss in the S&P 500. The Russell 3000 Growth Index, down 0.8%, trails the Russell 3000 Value Index, which is down 0.3%.

As for S&P 500 sector performance, energy (+2.6%) holds the top spot as WTI crude oil prices rise, up 1.4% to $89.81/bbl currently.

Consumer discretionary (-1.5%), communication services (-1.2%), and information technology (-0.6%) are some of the top laggards due to weakness in top components like, Tesla (TSLA), Meta Platforms (META), and Microsoft (MSFT).

Treasury yields rose sharply after the jobs report as participants recalibrated the potential rate-hike path for the Federal Reserve. The 2-yr note yield, sitting at 3.05% before the release, has climbed to 3.22%, while the 10-yr note yield, trading at 2.70% before the release, is up to 2.85%.

On a related note, the fed funds futures market yesterday was pricing in only a 34% probability of a 75-basis point rate increase at the September FOMC meeting. Following the release of the July employment report, the fed funds futures market now sees a 64.5% probability of a 75-basis point rate hike at the September FOMC meeting, according to the CME’s FedWatch Tool.

Reviewing today’s economic data:

July Nonfarm Payrolls 528K (consensus 250K); Prior was revised to 398K from 372K; July Nonfarm Private Payrolls 471K (consensus 200K); Prior was revised to 404K from 381K; July Avg. Hourly Earnings 0.5% (consensus 0.3%); Prior was revised to 0.4% from 0.3%; July Unemployment Rate 3.5% (consensus 3.6%); Prior 3.6%; July Average Workweek 34.6 (consensus 34.5); Prior was revised to 34.6 from 34.5