Wall Street’s main indexes closed more than 1% lower on Thursday as fresh evidence of a tight labour market ate away at any hopes investors had that the Federal Reserve could pause its rating hiking cycle anytime soon as it keeps focused on inflation. The Canadian benchmark index also lost ground, though losses were milder thanks to a bounce in energy stocks.
Thursday’s ADP National Employment report in the U.S. showed a higher-than-expected rise in private employment in December. Another report showed weekly jobless claims fell last week. On Wednesday, another data set showed a moderate fall in U.S. job openings.
While a strong labour market would usually be welcomed as a sign of economic strength investors currently see it as a reason for the Fed to keep interest rates high.
“It’s very clear that good news on the labour market means bad news for the stock market. Data is showing that the labor market is very resilient,” said Anthony Saglimbene, chief market strategist at Ameriprise in Tory Michigan.
“As long as the labour market is resilient, the Federal Reserve has to continue to tighten financial conditions to bring inflation down,” said that strategist who expects investors to be keenly focused on wage inflation in Friday’s jobs report.
The Dow Jones Industrial Average fell 339.69 points, or 1.02%, to 32,930.08, the S&P 500 lost 44.87 points, or 1.16%, to 3,808.1 and the Nasdaq Composite dropped 153.52 points, or 1.47%, to 10,305.24.
The indexes lost steam late in the day, ending close to their session lows. They had pared losses in the early afternoon when St. Louis Federal Reserve leader James Bullard said 2023 could finally bring some welcome relief on the inflation front.
While Saglimbene noted that Bullard’s comments were not surprising, his suggestion that rate hikes were starting to show some signs of dampening inflation, provided some reassurance.
Among the S&P’s 11 major sectors, real estate - which was the biggest percentage gainer on Wednesday - lead Thursday’s sector losses with a 2.9% drop, with utilities came next, falling 2.2%. The sole gainer was energy, which closed up 1.99%.
On Wednesday, Wall Street’s main indexes had erased some of their gains after minutes from the Fed’s December meeting showed officials were laser-focused on fighting inflation even as they agreed to slow the hiking pace to limit economic risks.
Earlier Thursday both Kansas City Fed leader Esther George and Atlanta President Raphael Bostic stressed that the central bank’s priority was to curb inflation through policy tightening.
Traders see rates peaking at slightly above 5% in June.
The more comprehensive U.S. nonfarm payrolls report due on Friday, will be looked to for further clues on labor demand and the rate hike trajectory.
Canada’s main stock index pulled back from a three-week high the day before, with the technology and industrial sectors leading declines. The S&P/TSX composite index ended down 81.99 points, or 0.4%, at 19,506.84.
Technology fell 1.8%, industrials lost 1.3% and heavily-weighted financials ended 0.8% lower.
Among the biggest decliners was precious metals miner Fortuna Silver Mines Inc. Its shares tumbled 10.4% after its Mexican subsidiary received an official notice that environmental clearances for its San Jose mine are being reassessed.
Energy was a bright spot, rallying 0.9%, as oil clawed back some of this week’s losses. The energy sector comprises a heavier weighting in the Canadian index than in the major U.S. indexes.
Among individual stocks in the U.S., Tesla Inc ended down 2.9% after December sales of its China-made electric vehicles fell to a five-month low, while Amazon.com Inc finished down 2.4% after it announced increased layoff plans.
Walgreens Boots Alliance Inc finished down 6% at $35.19 after the drugstore chain posted a quarterly loss on an opioid litigation charge.
Shares in Bed Bath & Beyond Inc plunged 29.9% to $1.69 after the home goods retailer said it was exploring options, including bankruptcy.
Declining issues outnumbered advancing ones on the NYSE by a 1.58-to-1 ratio; on Nasdaq, a 1.44-to-1 ratio favored decliners. The S&P 500 posted 8 new 52-week highs and 7 new lows; the Nasdaq Composite recorded 68 new highs and 66 new lows. On U.S. exchanges was 10.21 billion shares changed hands compared with the 10.79 billion moving average for the last 20 trading days.
Reuters, Globe staff
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