[New York Stock Exchange] Job Shock and Service Sector Slowdown... Dow Falls for First Time in Five Sessions

Closed Mixed in a Narrow Range; S&P and Nasdaq Rise
ADP May Private Sector Jobs Up 37,000, Lowest in Two Years
Trump Urges "Powell, Cut Rates Right Now"
May Services PMI at 49.9, First Contraction in About a Year
Treasury Yields Plunge on Expectations of More Than Two Rate Cuts This Year

The three major indices on the New York Stock Exchange closed mixed in a narrow range on June 4 (local time). The Dow Jones Industrial Average (Dow) turned downward for the first time in five trading days as private sector job growth slowed sharply last month and the service sector entered a contraction phase for the first time in about a year. Concerns persist that uncertainty over tariff policy is weighing on the U.S. economy. U.S. Treasury yields plummeted on expectations that the Federal Reserve (Fed) will cut interest rates more than twice this year to prevent a recession.

Reuters Yonhap News

On this day, the blue-chip Dow closed at 42,427.74, down 91.9 points (0.22%) from the previous session. The S&P 500, which focuses on large-cap stocks, rose 0.44 points (0.01%) to 5,970.81, while the tech-heavy Nasdaq gained 61.53 points (0.32%) to close at 19,460.49.

Last month, the increase in U.S. private sector jobs hit its lowest level in two years. According to a U.S. employment report released by private labor market research firm ADP, the number of new private sector jobs in May increased by 37,000. This is the smallest increase since May 2023, two years ago. The figure was well below the market forecast of 111,000, and the increase was also much smaller compared to April, when private sector jobs rose by 60,000.

Former U.S. President Donald Trump immediately urged Fed Chair Jerome Powell to cut interest rates again after the ADP private employment figures were released. On his social networking service, Truth Social, Trump said, "The ADP number is out," and added, "Too Late Powell must lower rates right now." He continued, "He is truly unbelievable," and pointed out, "Europe has cut rates nine times."

Following the private employment 'shock,' there is growing caution regarding the May employment report to be released by the U.S. Department of Labor on June 6. Experts expect that nonfarm payrolls increased by 125,000 last month, somewhat below April's figure of 177,000. While labor demand is expected to remain solid, it is likely to have slowed. The Department of Labor's nonfarm payrolls report covers both private and public sector employment, providing a broader view of the labor market compared to the ADP report, which includes only the private sector. The unemployment rate is expected to remain unchanged from the previous month at 4.2%.

Mike Dickson, Head of Research and Quantitative Strategy at Horizon Investments, said, "The ADP report has shown considerable volatility in the past, so we need to wait and see what happens with the (Department of Labor) report on Friday in terms of the labor market," adding, "The situation is likely to be better than feared." However, regarding whether this will serve as a catalyst for a stock market rally next month, he added, "We are entering a bit of a lull."

In addition, the U.S. service sector entered a contraction phase for the first time in about a year. According to the Institute for Supply Management (ISM), the May Services Purchasing Managers' Index (PMI) was 49.9, down 1.7 points from the previous month's 51.6. A reading above the baseline of 50 indicates expansion, while below 50 indicates contraction. This is the first time in about a year that the U.S. services PMI has fallen below 50.

Some analysts suggest that the market has developed a certain 'immunity' to recent trade policy uncertainty. They argue that President Trump is reversing tariff policies, using tariff threats as a bargaining chip in negotiations from the White House. Investors are awaiting a scheduled call this week between President Trump and Chinese President Xi Jinping, watching closely for any progress in the stalled U.S.-China trade talks.

Jeffrey Roach, Chief Economist at LPL Financial, said, "Trade uncertainty is weighing on some sectors such as healthcare, technology, and construction, but not everything is bleak or gloomy," adding, "Retailers and financial services firms have signaled growth potential despite tariff volatility." He also advised, "Given the wide divergence in sector outlooks, investors need to allocate assets wisely."

Amid concerns over a slowdown in the U.S. economy, expectations for interest rate cuts are rising and the preference for safe assets is spreading, causing U.S. Treasury yields to plunge. The 10-year U.S. Treasury yield, the global benchmark for bond rates, dropped 11 basis points (1bp = 0.01 percentage point) from the previous day to 4.35%, while the 2-year yield, which is sensitive to monetary policy, fell 9 basis points to 3.86%.

By stock, Dollar Tree plunged 8.37%. The sell-off intensified after the company said its second-quarter profit could fall by as much as 50% year-on-year due to tariff-related costs. Nvidia rose 0.5%, and Microsoft (MS) gained 0.19%. Tesla declined by 3.55%.