[New York Stock Market] Rises on Cooling Labor Market... Growing Expectations for Interest Rate Cuts

8.05 Million Job Openings in April... Lowest in 3 Years
Economic Downturn Signals in Employment Following Consumption and Manufacturing
May Employment Report by Ministry of Labor Released on 7th Draws Attention

The three major indices of the U.S. New York stock market all closed higher on the 4th (local time). Expectations for an interest rate cut spread due to signals of a slowdown in the labor market. However, concerns that the economy could enter a full-fledged downturn if the cooling of the labor market accelerates following weak U.S. consumer and manufacturing data limited the gains.

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 38,711.29, up 140.26 points (0.63%) from the previous trading day. The large-cap-focused S&P 500 index rose 7.94 points (0.15%) to 5,291.34, and the tech-heavy Nasdaq index gained 28.38 points (0.17%) to close at 16,857.05.

By stock, Nvidia, which recently unveiled its next-generation AI graphics processing unit (GPU) Rubin, rose 1.25%. GameStop fell 4.95%. GameStop surged 21% the previous day after revealing that Keith Gill, the famous U.S. retail investor known as "Roaring Kitty," who led the meme stock frenzy, holds a large amount of its stocks and options. Amid potential stock price manipulation controversy surrounding Roaring Kitty, Morgan Stanley and others are reviewing his accounts, raising the possibility of trading restrictions against him in the future. Intel, whose CEO Pat Gelsinger unveiled the AI processor "Luna Lake" to be released in the second half of this year, fell 0.86%. U.S. cosmetics brand Bath & Body Works dropped 12.82% due to disappointment over future earnings forecasts despite reporting first-quarter results that exceeded market expectations.

The number of job openings announced on that day showed signs of a cooling labor market that had been overheated. According to the Job Openings and Labor Turnover Survey (JOLTS) released by the U.S. Department of Labor, the number of job openings in April was 8.059 million, the lowest level in over three years since February 2021. This was significantly below the market expectation (8.37 million) and the previous month's figure (8.355 million). The hiring rate was 3.6%, and the voluntary quit rate was 2.2%, slightly up from the previous month (3.5% and 2.1%, respectively).

With U.S. job openings declining for two consecutive months to the lowest level in three years, the market interpreted this as a signal that the labor market is gradually cooling. As the labor market, which had fueled inflation overheating, cools down, the pace of price increases is expected to slow, increasing the likelihood of the Federal Reserve (Fed) cutting its benchmark interest rate. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day priced in over a 66% chance that the Fed will cut rates by at least 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in September. This is up from the 59% range a day earlier and 45% a week ago.

Ronald Temple, Chief Market Strategist at Lazard, analyzed, "Evidence is accumulating that the Fed needs to start easing."

Despite signals of economic downturn detected in the weak manufacturing data released the previous day and the consumer decline announced on the 31st of last month, investors focused on the fact that the labor market has not cooled enough to raise concerns about a recession. Earlier, the Institute for Supply Management (ISM) reported that the U.S. manufacturing Purchasing Managers' Index (PMI) for May was 48.7, below both the expert forecast (49.8) and the previous month's figure (49.2). A manufacturing PMI below 50 indicates economic contraction. Consumption also slowed. According to the U.S. Department of Commerce's Bureau of Economic Analysis (BEA), real personal income and real personal consumption, adjusted for inflation, both fell by 0.1% month-over-month in April.

The market is paying close attention to the U.S. Department of Labor's May nonfarm payroll report to be released on the 7th. May nonfarm payrolls are expected to increase by 185,000 from the previous month. In April, payrolls rose by 175,000, falling short of the forecast of 243,000. If the overheated labor market also cools, the slowdown in consumption and the decline in inflation could accelerate.

Tom Essaye, founder of The Sevens Report Research, added, "If a Goldilocks (neither overheated nor cooled) indicator emerges, it will help stabilize the stock market, which experienced increased volatility last week."

Bond yields are falling amid expectations of interest rate cuts. The U.S. 10-year Treasury yield, a global benchmark for bond yields, traded at around 4.32%, down 7 basis points (1bp = 0.01 percentage points) from the previous trading day. The 2-year U.S. Treasury yield, sensitive to monetary policy, moved down 4 basis points to around 4.77%.

International oil prices declined. West Texas Intermediate (WTI) crude fell $0.97 (1.31%) to $73.25 per barrel, and Brent crude, the global oil price benchmark, dropped $0.84 (1.07%) to close at $77.52. This was due to the OPEC+ (Organization of the Petroleum Exporting Countries (OPEC) members and non-OPEC allies) decision to extend voluntary oil production cuts of 2.2 million barrels per day through the third quarter of this year, followed by a gradual reduction.