Stocks Tumble, Yields Climb As Investors Fear Upcoming Rate Hikes Amid Booming Job Growth: What's Driving Markets Thursday?

Thursday saw heightened risk aversion across markets, with all major U.S. indices losing ground and the VIX volatility Index rising by more than 17%, making it one of the most volatile days of the year so far.

The release of a healthy ADP employment number raised investor expectations that the Federal Reserve may resume interest rate hikes and perhaps extend them beyond the summer. With 497,000 new jobs added in June, above May’s result of 267,000 and predictions of 228,000, concerns are growing that the Fed will become more hawkish.

In reaction, traders revised their estimates for future Fed rate hikes, assigning an almost certain probability to a July boost and a roughly 50-50 chance of another hike by November.

Furthermore, the most recent FOMC minutes revealed an unusual level of dissent among participants, increasing concerns that more hawkish members may acquire power over the board.

As investors await Friday’s job market report, which will reveal June nonfarm payrolls (expected to be around 225,000) and the unemployment rate (expected to be 3.6%), many expect the data will confirm stronger-than-expected job market performance, following the impressive ADP National Employment Report.

Cues From Thursday’s Trading:

All major U.S. averages were trading in the negative, with the S&P 500 Index and the Nasdaq 100 Index both down 1.1%.

The Dow Jones slightly underperformed, down 1.3%, while small caps in the Russell 2000 index were the weakest link, plummeting 2.2% for the session.

US Index Performance On Wednesday

Charts Of The Day: VIX Spikes In One Of The Most Volatile Days Of 2023

Thursday’s Trading In Major US Equity ETFs: In midday trading on Thursday, the SPDR S&P 500 ETF Trust (NYSE:SPY) was 1% lower to $438.65, the SPDR Dow Jones Industrial Average ETF (NYSE:DIA) fell 1.3% to $338.40 and the Invesco QQQ Trust (NASDAQ:QQQ) was1% lower to $366.53, according to Benzinga Pro data.

All U.S. equity sectors were negative. The sharpest declines were recorded by the the Energy Select Sector SPDR Fund (NYSE:XLE), down 2.4%, and the Materials Select Sector SPDR Fund (NYSE:XLB), down 1.4%. 

Latest Economic Data:

The ADP reported a 497,000 payroll surge last month, surprising estimates of 228,000 and well above the market reading of 267,000.

The Labor Department reported an increase of 12,000 to 248,000 in weekly jobless claims, just topping estimates of a 245,000 increase.

Dallas Fed President Lorie Logan sounded hawkish during a Thursday speech, signaling the need to hike further and keep policy restrictive for longer to abate inflation.

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Stocks In Focus:

• Freeport-McMoran (NYSE:FCX) fell 5% as its unit, PT Freeport Indonesia, announced it has not yet obtained a permit from the Indonesian government to continue exporting its materials.
• Affirm Holdings Inc. (NASDAQ:AFRM) fell 15% Thursday after Piper Sandler downgraded the Buy Now Pay Later platform, as competition intensifies and interest rates hit margins.
• Lucid Group Inc. (NASDAQ:LCID) fell 6.7%, following a record streak of seven days of gains.
• ConocoPhillips (NYSE:COP) fell 4.3% as energy firms suffer from rising expectations about Fed rate hikes.

Commodities, Bonds, Other Global Equity Markets:

Crude oil fell 0.9%, with a barrel of WTI-grade crude trading at $71.22. The United States Oil Fund ETF (NYSE:USO) was 1% lower to $64.  

Treasury yields slightly rose, with the 10-year yield up by 11 basis points to 4.05% and the two-year yield up by 8 basis points to 5.03%. The iShares 20+ Year Treasury Bond ETF (NYSE:TLT) was 1.4% lower for the day. 

The dollar slightly eased, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), down 0.1%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust (NYSE:FXE), was 0.2% higher to 1.0875.

European equity indexes closed in deep red. The SPDR DJ Euro STOXX 50 Etf  (NYSE:FEZ) fell 2.44%. 

Gold eased 0.2% to $1,911/oz. The SPDR Gold Trust (NYSE:GLD) was 0.2% lower to $177. Silver fell 1.8% to $22.7, with the iShares Silver Trust (NYSE:SLV) down 1.8% to $20.8. Bitcoin (CRYPTO: BTC) was 0.8% lower to $30,253.

Staff writer Piero Cingari updated this report midday Thursday. 

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