[New York Stock Market] Mixed Close Amid US Employment Cooling Concerns... Sharp Drop in Treasury Yields

Waiting for the 'August Employment Report' Amid Cautious Sentiment
July Job Openings at Lowest in 3.5 Years... Decline in Treasury Yields
Fed: "Number of Regions with Economic Slowdown/Stagnation Increased from 5 to 9"
NVIDIA Down 1.7%... US Steel Plummets 17%

The three major indices of the U.S. New York Stock Exchange closed mixed on the 4th (local time) in a narrow range. Ahead of the 'August Employment Report' to be released on the 6th, investors showed a tendency to take a wait-and-see approach to the market. U.S. job openings fell to their lowest level in three and a half years, causing a sharp decline in Treasury yields.

On that day in the New York stock market, the Dow Jones Industrial Average, centered on blue-chip stocks, closed at 40,974.97, up 38.04 points (0.09%) from the previous trading day. The S&P 500, focused on large-cap stocks, fell 8.86 points (0.16%) to 5,520.07, and the Nasdaq, centered on technology stocks, dropped 52 points (0.3%) to 17,084.3.

After the previous day’s weak manufacturing data triggered fears of a recession ('R'), the market attempted to recover amid caution on this day. However, with major indicators such as the employment report pending, the mood was to wait until later this week, preventing a rebound in the stock market.

The employment data released that day added to recent signs of cooling in the labor market. According to the July Job Openings and Labor Turnover Survey (JOLTs) released by the U.S. Department of Labor, job openings last month totaled 7.673 million. This figure was below both the market forecast (8.09 million) and the previous month’s figure (7.91 million), marking the lowest level in three and a half years since January 2021. Involuntary separations, meaning layoffs, increased by 202,000 from the previous month to 1.762 million, the highest level in one year and four months since March last year. The number of job openings per unemployed person was 1.1, the lowest in three years.

Due to the slowdown in employment indicators, Treasury yields have fallen sharply. The yield on the 2-year U.S. Treasury note dropped 12 basis points (1bp = 0.01 percentage points) to 3.76%, and the 10-year U.S. Treasury yield, a global bond benchmark, fell 8 basis points to 3.75% compared to the previous trading day.

The U.S. Federal Reserve (Fed) also diagnosed that the economy is slowing down. According to the 'Beige Book,' a report on economic conditions released by the Fed that day, economic activity stagnated or slowed in 9 of the 12 districts, up by 4 districts from the 5 districts reported in July. The Fed also assessed that job seekers are finding it harder to get jobs in the labor market. The Fed stated, "Employers have been more selective in hiring due to concerns about demand and economic uncertainty, and the likelihood of expanding their workforce was low," adding, "Applicants are finding it more difficult and taking longer to find jobs."

Along with the cooling labor market trend and the Fed’s diagnosis of economic slowdown, expectations for a big rate cut (0.5 percentage points) in September have increased. Currently, the interest rate futures market reflects a 55% chance that the Fed will cut rates by 0.25 percentage points and a 45% chance of a 0.5 percentage point cut at the September meeting. The probability of a big cut rose by 7 percentage points from 38% the previous day.

Investors’ attention is focused on the August employment report to be released this Friday, the 6th. Experts expect nonfarm payrolls to have increased by 165,000 last month, with the unemployment rate at 4.2%. If nonfarm payrolls fall below 100,000 or the unemployment rate rises above 4.4-4.5%, the likelihood of the Fed implementing a big cut will strengthen. On the 5th, one day earlier, ADP’s August private employment report and weekly initial and continuing jobless claims will be released.

Wall Street expects volatility to continue until the August employment report is released.

Case Runner, Co-Chief Investment Officer (CIO) of Truist, said, "Investors are somewhat cautious and lack confidence in trading. Everyone is waiting for Friday’s employment report, and until then, the market will be in a bit of a holding pattern."

By stock, Nvidia fell 1.66%. Apple dropped 0.86%, and Microsoft (MS) declined 0.13%. U.S. Steel plummeted 17.47% after reports that the Joe Biden administration would block the sale of Nippon Steel.

International oil prices fell again due to concerns about economic slowdowns in the U.S. and China, following a drop of more than 4% the previous day amid demand slowdown forecasts. West Texas Intermediate (WTI) crude oil closed at $69.20 per barrel, down $1.14 (1.62%) from the previous trading day, and Brent crude, the global oil price benchmark, closed at $72.70 per barrel, down $1.05 (1.42%).