U.S. equity markets edged higher on Thursday as a weaker-than-expected June jobs report tempered concerns about further Federal Reserve interest rate increases, prompting a rotation out of high-flying tech and semiconductor stocks into broader market sectors.
Market Movers
The Dow Jones Industrial Average surged 447.72 points, or 0.86%, to 52,752.96. The S&P 500 advanced 49.84 points, or 0.67%, to 7,533.51, while the Nasdaq Composite added 146.99 points, or 0.56%, to 26,187.02. However, beneath the surface, a significant divergence emerged: equal-weight and sector exchange-traded funds (ETFs) outperformed their cap-weighted counterparts, while semiconductor funds experienced notable declines.
Jobs Data Disappoints
The Labor Department reported that nonfarm payrolls increased by only 57,000 in June, well below the Reuters forecast of 110,000. The unemployment rate held steady at 4.2%, and labor force participation slipped 0.3 percentage points to 61.5%. Revisions to April and May payrolls subtracted a combined 74,000 jobs. Average hourly earnings rose 0.3% from May and 3.5% year-over-year.
“It’s a beautiful number. It’s the best number we could hope for,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers. Bret Kenwell, U.S. investment analyst at eToro, noted that the report “doesn’t scream labor-market trouble, but it does cool the narrative a bit.”
Sector Rotation and ETF Performance
The jobs data triggered a clear rotation out of technology and semiconductor stocks. The Technology Select Sector SPDR Fund (XLK) fell 1.19%, and the iShares Semiconductor ETF (SOXX) tumbled 3.17%. In contrast, the Consumer Staples Select Sector SPDR Fund (XLP) rose 1.36%, and the Materials Select Sector SPDR Fund (XLB) added 1.04%. The Invesco S&P 500 Equal Weight ETF (RSP) gained 0.48%, outperforming the SPDR S&P 500 ETF Trust (SPY), which rose just 0.24%.
Big Tech Mixed
Major tech stocks showed mixed performance. Apple (AAPL) climbed 4.00%, and Microsoft (MSFT) added 1.38%. However, NVIDIA (NVDA) fell 0.52%, Advanced Micro Devices (AMD) slid 3.73%, and Micron Technology (MU) dropped 3.37%.
Bond Yields and Rate Expectations
The two-year Treasury yield, sensitive to Federal Reserve policy expectations, fell 6 basis points to 4.11% following the payrolls data. Traders in fed funds futures now see a 21.9% chance of a rate hike at the July 29 meeting, down from 31.5% before the report. The probability of a September hike also dipped to 54.8% from 64.3%.
Federal Reserve Chair Kevin Warsh emphasized the central bank’s commitment to its inflation target, stating Wednesday that those expecting the Fed to be comfortable with inflation above 2% “would be disappointed.” San Francisco Fed President Mary Daly described policy as “slightly restrictive” and urged caution in reacting to rapid changes in the economic landscape.
Other Market Developments
Oil prices eased, with Brent crude dropping 1% to $70.82 a barrel, amid reports of potential diplomatic progress regarding tensions with Iran. National Beverage (FIZZ), maker of LaCroix, surged 12.9% after announcing a $3.25 special dividend.
Market breadth remained solid, with advancers outpacing decliners by a ratio of 3.85-to-1 on the NYSE and 2.48-to-1 on the Nasdaq. Ten of the 11 core S&P 500 sectors finished in positive territory. U.S. stock markets will be closed on Friday, July 3, in observance of the Independence Day holiday.
