Conflicting Job Market Data Puts More Pressure on Friday's Big Employment Report

(Wednesday Market Open) Equity index futures were slightly higher as stocks try to bounce back from yesterday’s sell-off.

Potential Market Movers

The bulls may get a little relief from falling oil prices. After breaking above resistance on Monday, WTI crude oil futures gave up the previous day’s gains and were down another 2.8% in premarket action. Falling oil prices are likely to be a drag on energy stocks and may relieve some inflation fears.

The Cboe Market Volatility Index (VIX) ticked a little lower ahead of the opening bell but remained above the 26 level.

However, Natural gas futures were 1.12% higher in premarket action on the news that Russia halted its flow of natural gas to Germany once again. Russian energy giant Gazprom said the Nord Stream 1 pipeline is undergoing three days of maintenance. While Gazprom said the shutdown would be temporary, European Union officials charged it’s Russia’s way of putting pressure on Germany for supporting sanctions against Russia.

The ADP National Employment Report was issued this morning for the first time in three months after a revamp to provide more data on jobs and payrolls. The report showed that U.S. private employers added 132,000 jobs in July—well below the projected 288,000. The largest gains came out of the leisure and hospitality sector followed by trade transportation and utilities and then construction.

The weaker ADP report could help the bulls after yesterday’s JOLTs report prompted a sell-off. However, the conflicting news clouds the job market picture ahead of Friday’s Employment Situation report.   

Meme stock Bed Bath and Beyond (BBBY), announced plans to close some stores, discontinue some brands, and issue equity to pay down debt, causing the stock to plunge more than 26%.

Reviewing the Market Minutes

On Tuesday, investors finally seemed to be listening to the Federal Reserve and its repeated commitments to bring down inflation even at the possible cost of recession. Sellers drove all major stock indexes lower by the close.

The latest to repeat those comments was John Williams, New York Federal Reserve Bank president, who told The Wall Street Journal yesterday that “we need to have somewhat restrictive policy to slow demand, and we’re not there yet.”

The S&P 500® index (SPX) fell 1.1% to finish under the 4,000 level for the first time since July. The Cboe Market Volatility Index (VIX) edged above 27 during the trading day but finished unchanged at 26.21.

A surprisingly robust JOLTS jobs report and the first positive Conference Board consumer confidence numbers in four months sent stocks into a third day of losses, which were triggered last Friday after Fed Chairman Jerome Powell’s hawkish statements at the Fed’s annual Jackson Hole conference in Wyoming were released. Though the major indexes attempted a premarket rally, the day’s data and comments seemed to convince investors that growth and corporate profits could fall under sustained pressure as rates rise.

Even though home prices lost ground in June, S&P CoreLogic Case-Shiller data pointed out that prices were still 18% higher than year-ago levels, indicating that the debate over whether the housing market is in recession may continue.

The 2-year Treasury yield rose to 3.458% and the 10-year Treasury yield (TNX) finished at 3.112% on the day.

The Dow Jones® Industrial Average ($DJI) recovered from steeper losses to finish down more than 300 points and fell 0.96% by the close. The Nasdaq (COMP) lost 1.12%, and the Russell 2000® (RUT) gave up 1.45%.

All major sectors closed in the red, led by energy, materials, and industrials.

In earnings news after the close, Hewlett Packard (HPQ) beat earnings and revenue expectations but lost 4.86% in after-hours trading because executives moved the top range of their guidance for adjusted annual profits slightly lower.

Pet retailer Chewy (CHWY) beat on earnings but disappointed on revenues and its full-year forecast, causing the stock to lose more than 9% after the close. CrowdStrike (CRWD) beat on both sales and earnings and announced positive guidance for Q3 and the full year but lost a fraction in after-hours trading.

After the close, reports said social media company Snap (SNAP) plans to lay off 20% of its staff, which caused the stock to drop 5.69% after the bell. 

CHART OF THE DAY: BIT OF A JOLT. With the ADP nonfarm payroll numbers arriving tomorrow and August’s much-awaited Employment Situation report on Friday, the Labor Department’s Job Openings and Labor Turnover Survey, better known as JOLTS FRED, wasn’t expected to surprise. It did, however—to the tune of 1 million more openings than expected. That’s great news for job-seekers; not such great news for central bankers trying to get a handle on inflation when higher wage costs force higher prices on a company’s goods and services. FRED® is a registered trademark of the Federal Reserve Bank of St. Louis. The Federal Reserve Bank of St. Louis does not sponsor or endorse and is not affiliated with TD Ameritrade. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Three Things to Watch

STILL PAYS TO QUIT: July’s JOLTS figures showed about two jobs for every unemployed person in July, up from 1.9 in June. The Atlanta Fed’s Wage Growth Tracker provides a 12-month moving average of median wage growth based on hourly data, and the results for “stayers” and “switchers” are eye-opening. In July, wage growth for those sticking with their current job rose 4.9%. But for those willing to switch, paychecks averaged a gain of 6.4%.

BUT FOR HOW LONG? Tuesday’s JOLTS data detailed higher-than-expected job openings but a bit of erosion in quits, and that’s worth watching. Experts generally see quits as a sign that workers are confident taking a chance leaving a job by choice. The Labor Department said some 4.2 million workers quit their jobs in July, down slightly from June, and the quits rate edged down to more than a one-year low of 2.7%.

LOOKING TO FRIDAY: Bloomberg said Friday’s monthly jobs report is expected to add about 300,000 jobs in August with the unemployment rate holding at 3.5%, a 50-year-low, and forecasted that average hourly earnings will increase.

Notable Calendar Items 

Sep 1: ADP Nonfarm Employment, ISM Manufacturing PMI, and earnings from Broadcom (AVGO), Lululemon (LULU), Hormel Foods (HRL), Campbell Soup (CPB), and Toro (TTC)

Sep 2: Employment Situation Report and earnings from DocuSign (DOCU)

Sep 5: Markets closed for Labor Day Holiday

Sep 6: ISM Non-Manufacturing PMI, and earnings from Guidewire (GWRE), HealthEquity (HQY), and Coupa Software (COUP)

Sep 7: U.S. Trade Balance, Federal Reserve Beige Book, and earnings from GameStop (GME), MongoDB (MDB), and UiPath (PATH)

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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