(July 3): US equities lost earlier gains as technology stocks trailed the S&P 500 Index for a second straight day, continuing the downturn after the rally seen in the previous quarter.
The S&P 500 Index fell 0.4% by 12.44pm in New York, erasing gains from a cooler-than-expected employment report that dimmed prospects of an interest-rate hike from the Federal Reserve. Meanwhile, the tech-heavy Nasdaq 100 Index fell 2% as semiconductor company stocks tumbled.
A rotation out of the technology stocks that had propelled the market higher in the first part of the year was on display for a second consecutive session. Meanwhile, defensive consumer staples, utilities and healthcare stocks jumped. An equal-weighted version of the S&P 500 traded up 0.3%.
The drop in semis followed the Information’s report that Anthropic PBC is in talks with Samsung Electronics Co to be a manufacturing partner for a custom artificial intelligence chip. Plans are at an early stage and Anthropic is determining details around the processor, the Information said, citing people familiar with the matter.
Initially, the S&P 500 and Nasdaq 100 received a boost from a report that showed US hiring slowed sharply in June even as the unemployment rate fell. The report suggested the labor market still faces some challenges despite signs of strength in recent months.
See also: Most US stocks rise as Warsh says price risks fading
“A mixed June employment report signaled moderation in job growth from May’s accelerated rise, taking the steam out of market expectations for Fed rate hikes by year end,” said Jennifer Timmerman, senior investment strategy analyst at Wells Fargo Investment Institute.
The pullback in hiring was led by the biggest decline in leisure and hospitality payrolls since 2020, “reflecting weaker than usual seasonal hiring,” according to the Bureau of Labor Statistics. Ahead of the report, some economists were expecting the Fifa World Cup, which kicked off last month, to boost payrolls in the sector.
“Hospitality employment went sharply negative, confirming anecdotal evidence from hoteliers that the World Cup boost was proving to be a fool’s paradise,” said Brad Conger, chief investment officer at Hirtle & Co.
See also: US stocks decline as traders await Warsh comments, fresh data
Interest-rate swaps showed traders pricing in about a 20% chance of an increase at the Fed meeting later this month, down from around 33% before the data was issued.
The soft jobs report comes a day after Fed chairman Kevin Warsh said inflation risks had come down in recent weeks and reiterated his determination to bring the pace back down to the central bank’s 2% target.
“As we are learning how the Fed reaction function will form under Warsh, this print takes some of the pressure off of the inflation fighting institution to hike near term,” said Bradford Smith, portfolio manager at Janus Henderson Investors.
Smith noted that moderating oil price inflation and softness on jobs “likely keeps the Fed on hold at least for the next meeting”.
In terms of single stock moves, Adobe Inc advanced after the software company was upgraded to buy from hold at HSBC. Palantir Technologies Inc rose as DA Davidson raised its recommendation to buy from neutral.
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