Markets slip as a strong jobs report disappoints investors

Dow fell 87 (near session lows), decliners over advancers about 5-2 & NAZ was off 40.  The MLP index stayed in the 279s & the REIT index pulled back 3+ to the 272s.  Junk bond funds were a smidgen lower & Treasuries continued to see very heavy selling which brought sharply higher yields.  Oil was off pennies in the 75s & gold plunged 73 to 2317 (more on both below).

Dow Jones Industrials 

May's surprising pace of job growth & wage rise added to the conviction that the Federal Reserve will stay on hold through this summer & possibly beyond.  The Bureau of Labor Statistics reported that nonfarm payrolls increased by 272K for the month, considerably higher than the forecast of 190K & well above Apr's comparatively muted gain of 165K.  In addition, average hourly earnings rose 4.1% over the past 12 months, more than expected.  Beyond signaling a still-vibrant labor market, the data at the very least adds to the narrative that the Fed doesn’t have to rush to lower interest rates.  As inflation runs above the central bank's 2% target, there's scant evidence that higher rates are endangering broad metrics of economic growth.  The Fed’s “dual mandate” entails maintaining both full employment & stable prices.  Even with the unemployment rate rising to 4% in May, the labor market appears vibrant.  However, on the other side of the mandate, inflation is still running well above the Fed's target.  Most gauges have prices rising annually at about a 3% rate, down significantly from the peaks of mid-2022 but still running hot.  Following the jobs numbers, futures traders cut bets on rate cuts.  Pricing in fed funds futures pointed to almost no chance of a reduction at either the Federal Open Market Committee's meeting next week or on Jul 30-31.  From there, pricing indicates about a 54% probability of a Sep move & just over a 50% chance that the Fed will follow up with a 2nd cut before the end of the year, according to the CME Group's FedWatch measure.  All of those probabilities were down sharply from yesterday's levels.

Market backs off on hopes for interest rate cuts following strong jobs report

The US labor market is cooling off after months of rapid job gains, but some workers are feeling the slowdown more than others.  Recent data published by Vanguard shows demand for higher-income employees is waning, painting a picture of a 2-tier job market that has seen hiring flourish for blue-collar workers & languish for white-collar workers.  Among the lowest-income earners, those making less than $55K annually, the hiring rate has remained above pre-pandemic levels, at 1.5%.  But hiring for those who earn more than $96K has slowed to just 0.5%, less than ½ the peak it hit in mid-2022, which is based on new enrollments in Vanguard's 401(k) plans.  It marks the slowest hiring rate for high-income workers since 2014, excluding a major drop during the pandemic.  "This is partly a reflection of lower-paying service industries still trying to recover from the COVID shock, a challenge since many of those workers have transitioned to higher-paying opportunities," said Adam Schickling, a senior Vanguard economist.  There are several reasons companies are hiring so few white-collar workers right now.  Some businesses, like tech companies, went on a hiring binge during the pandemic, Julia Pollak, the chief economist at ZipRecruiter, said.  But as the economy normalized & Americans returned to in-person activities, those companies laid off a slew of workers & stopped hiring new ones.  Tech companies slashed more than 47K jobs in Apr, a 58% decrease from the nearly 114K cuts announced during the same period the previous year, according to a separate analysis conducted by Challenger, Gray & Christmas.  "It does appear to be a bit of a rolling recession in the economy, with white-collar fields overall not contracting, but being very flaccid, so things [aren't] growing either," Pollak said.  "There's some white-collar stagnation."  High interest rates are also forcing some companies to put riskier investments on hold.  Hiring is unlikely to pick up again until Federal Reserve reduces rates from the current 23-year high, she said.  Central bank officials have indicated that rate cuts will begin later this year but cautioned they need to see more evidence that inflation is returning to their 2% target.

White-collar workers are struggling to find jobs as the labor market slows

Microsoft (MSFT), a Dow stock, said an artificial intelligence feature on new PCs that captures screenshots & enables searching of user activity will be off by default after security researchers determined that attackers could access the underlying data.  The Recall feature was one of the main capabilities MSFT showed last month for forthcoming Copilot+ PCs with AI computing power onboard.  “If you don’t proactively choose to turn it on, it will be off by default,” Pavan Davuluri, MSFT's head of Windows & Surface devices, wrote today.  MSFT has been trying to balance competing interests of late as it moves to incorporate new generative AI tools into its products & to keep up with the competition.  While the market is evolving rapidly, user privacy & security are under a microscope.  A US gov review board recently criticized MSFT's handling of China's breach of US gov officials' email accounts.  MSFT already added the Copilot conversational chatbot into Windows in a way that resembles OpenAI's popular ChatGPT.  Both ChatGPT & Copilot rely on servers in the cloud to perform necessary computations & then send back responses to PCs.  Recall is different in that it keeps data on users' computers & doesn't need to access supplemental computing power over the internet.  CEO Satya Nadella directed employees to put security first & announced changes to its security practices following the gov report.  The stock fell 79¢.

Microsoft says AI feature that captures screenshots on new PCs will be off by default after backlash

Gold futures posted their lowest finish in about a month, pressured by stronger-than-expected monthly US jobs data & a report that China's central bank paused its 1½ year streak of bullion purchases last month.  The US created a larger-than-expected 272K new jobs in May, reducing the chances the Federal Reserve will cut interest rates soon.  Holdings of the precious metal by the PBOC held steady at 72.8M troy ounces for May.  Gold for Aug fell $65 (2.8%) to settle at $2325 an ounce.  Prices for the most-active contract marked their worst 1 day percentage decline since Apr & lowest settlement since May 8.

Gold suffers a 'double whammy': strong U.S. jobs growth and pause in China buying

West Texas Intermediate (WTI) crude oil closed with a small loss as hopes for interest-rate cuts declined after the US added more jobs than expected in May.  WTI crude oil for Jul closed down 2 pennies to settle at $75.53 per barrel, while Aug Brent crude, the global benchmark, was last seen down 21¢ to $79.66.  US non-farm payrolls rose by 272K new jobs last month, up from 175K in Apr & well ahead of the estimate for a rise of 190K.  The robust report may dash hopes the Federal Reserve will soon follow cuts from this week by central banks in Canada & Europe & begin lowering interest rates as soon as Sep.  OPEC+ leaders yesterday moved to assuage a market concerned the group's focus has moved to protecting their market share rather than supporting prices after the group said it plans to return 2.2M barrels per day of production cuts to the market beginning in the 4th qtr.

WTI Crude Closes Lower After U.S. Jobs Report Cools Rate-Cut Hopes

Today's Labor Dept labor report offered more evidence that parts of the economy are too hot for the central bank's fight against inflation, feeding into a narrative of keeping rates higher for longer.  Traders will be weighing its meaning this weekend.  Gold is a commodity which can produce wild daily price swings.  Today was 1 of those days.  However uncertainty related to how long high interest rates will persist should keep gold in high demand.  Dow rose 112 this week.