Nasdaq, S&P, Dow seesaw to start the new month amid mixed labor market data

U.S. stocks on Thursday kicked off the month of June with small moves, as investors digested some conflicting economic data on the labor market.

The tech-heavy Nasdaq Composite (COMP.IND) was lower by 0.05% to 12,929.38 points in morning trade, while the benchmark S&P 500 (SP500) fell 0.14% to 4,174.00 points. The blue-chip Dow (DJI) slipped 0.57% to 32,722.30 points.

Of the 11 S&P sectors, seven were trading in the red, led by Utilities. Communication Services topped the losers.

Following Wednesday’s strong JOLTS report, traders received further data on the jobs market. The Department of Labor’s final estimate of quarterly productivity and costs showed a fall in nonfarm labor productivity and a significant revision to unit labor costs, giving some room to the Federal Reserve to pause its rate-hiking cycle at its June meeting.

However, a separate report showed that the number of Americans filing for weekly jobless claims came in lower than expected, while ADP’s measure of private payrolls in May came in much higher than expected. The focus will now be on Friday’s more comprehensive jobs report for further clues about the state of the labor market.

“This is the second straight upside surprise from ADP, but it does not necessarily signal a strong official number tomorrow,” Pantheon Macro’s Ian Shepherdson said. “Since ADP introduced new methodology last August, its private payroll estimate has undershot the official numbers by a total of 319K, for reasons which are not clear.”

Market expectations for the Fed’s future monetary policy actions have fluctuated wildly over the last 24 hours. After the release of the JOLTS report on Wednesday, traders dialed up their odds of another rate hike in June. Later in the day, comments from Philly Fed President Patrick Harker and Fed Governor Philip Jefferson signaled that the central bank should instead skip a hike, as monetary policy had become close to being restrictive. Traders immediately revised their expectations.

According to the latest data from the CME FedWatch tool, markets are now pricing in a nearly 74% chance of no hike in June.

“Investors still expect another rate hike this cycle as fed futures are pricing in a 83% chance of a rate hike through the July meeting, but after the comments yesterday it is clear that there is more weight on July over June,” Deutsche Bank’s Jim Reid said.

Focus has shifted away from the debt ceiling deal, which continued its march towards an approval after easily passing a vote in the House. If cleared, the deal would suspend the debt ceiling into 2025. However, that could lead to a draining of deposits by the Treasury and the markets could be dealing with a tough liquidity issue. 

Treasury yields were lower on Thursday. The longer-end 10-year yield (US10Y) was down 4 basis points to 3.60% while the more rate-sensitive 2-year yield (US2Y) was down 3 basis points to 4.36%. 

Turning to active stocks, the recent enthusiasm around anything related to artificial intelligence lost its steam after a disappointing guidance from C3.ai (AI) sent shares of the company tumbling more than 20%.  

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