[New York Stock Market] Rate Cut Expectations Spread Amid Weak Employment... S&P and Nasdaq Hit New Highs Again

US Continued Unemployment Claims Highest in 31 Months
Private Employment Increased by 150,000 in June... Three Consecutive Months of Decline
73% Chance of September Rate Cut... Treasury Yields Fall
Focus on Last Month's FOMC Minutes Release

The three major indices of the U.S. New York Stock Exchange closed mixed on the 3rd (local time), a day before Independence Day, with early market closure. Expectations for a rate cut rose due to weak employment data released that morning, leading to a decline in bond yields. As a result, the S&P 500 and Nasdaq indices set new all-time highs for the second consecutive day. The minutes of the June Federal Open Market Committee (FOMC) meeting will be released after the market closes.

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On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 39,308, down 23.85 points (0.06%) from the previous trading day. The large-cap-focused S&P 500 rose 28.01 points (0.51%) to 5,537.02, and the tech-heavy Nasdaq increased by 159.54 points (0.88%) to 18,188.3, marking new all-time highs for the second consecutive day.

Among individual stocks, large technology stocks showed notable gains. Nvidia, the leader in artificial intelligence (AI), jumped 4.57%. Tesla surged 6.54% following a 10.2% increase the previous day, after its Q2 vehicle deliveries exceeded expert expectations. Paramount Global rose 6.9% after news that U.S. Hollywood production company Skydance Media reached a preliminary agreement to merge with National Amusements, the controlling shareholder of Paramount Global, boosted its stock price. Amazon fell 1.21% after news that founder Jeff Bezos would sell an additional $5 billion worth of shares.

The employment data released that day confirmed signals of a cooling labor market.

According to the U.S. Department of Labor, the number of continuing unemployment claims, which counts those applying for unemployment benefits for at least two weeks, increased by 26,000 to 1,858,000 for the week of June 16-22 compared to the previous week. This marked the highest level since November 2021 (1,878,000) for the second consecutive week. Additionally, continuing claims rose for the ninth consecutive week, the longest streak of increases in six years since 2018.

New unemployment claims for the week of June 23-29 were 238,000, exceeding both the expert forecast (234,000) and the previous week's figure (234,000). The four-week moving average of unemployment claims, which smooths out volatility to better reflect trends, rose by 2,250 to 238,500 compared to the previous week.

Private sector employment growth also declined for the third consecutive month last month. According to ADP, a private labor market research firm, private sector job additions in June increased by 150,000. This was below the market expectation of 163,000 and also less than May's 157,000. Wages for employees who stayed at the same job over the past 12 months rose 4.9% year-over-year, the lowest level since August 2021. Wage growth for job changers also slowed to 7.7%.

Due to the weak employment data, investors are increasing bets on a rate cut in September. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market reflected a 72.6% probability that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting, slightly up from 68.9% the previous day. The probability of a 0.25 percentage point or more cut in November rose from 80.1% to 82.6%.

Market attention is turning to the Labor Department's employment report on the 5th, which will provide a more accurate picture of the U.S. labor market. Experts expect nonfarm payrolls to have increased by 189,000 last month, a significant slowdown from the previous month's 272,000. The unemployment rate is expected to remain steady at 4%.

The service sector also showed signs of contraction in data released that morning. According to the Institute for Supply Management (ISM), the non-manufacturing Purchasing Managers' Index (PMI) for June was 48.8. A PMI below 50 indicates contraction, while above 50 indicates expansion. This marked a drop of more than 5 points from the previous month (53.8), signaling a shift to contraction after one month.

With the labor market and service sector slowing, expectations for rate cuts have spread, causing bond yields to fall. The U.S. 10-year Treasury yield, a global benchmark for bond yields, dropped 8 basis points (1bp=0.01 percentage points) to 4.35%, while the 2-year Treasury yield, sensitive to monetary policy, fell 3 basis points to 4.73%.

Fawad Razaqzada, a researcher at Citi Index and Forex.com, commented, "Bad news is good news," noting that "the way risk assets reacted to the weaker-than-expected U.S. data released that day is exactly that."

The minutes of the June FOMC meeting will be released at 2 p.m., one hour after the early market close. With the Fed having reduced its forecast for the number of rate cuts this year from three to one, the minutes are expected to provide clues about the future path of interest rates by revealing the discussions among officials.

The market will be closed on the 4th for the U.S. Independence Day holiday.