Investors were disappointed as no US interest rate cut was expected. – Analysis and Forecast – June 11, 2024

Wall Street stocks closed slightly lower on Friday amid turbulence after strong U.S. employment data confirmed the economy’s resilience but raised concerns the Federal Reserve may keep interest rates higher for longer than many investors expected.

The U.S. Labor Department said the country added about 272,000 jobs in May, well above analysts’ forecasts of 185,000. The unemployment rate rose to 4%.

The S&P 500 (.SPX) fell sharply after the report, while Treasury yields rose as traders lowered their expectations of a September rate cut. The index rallied and briefly hit a new intraday record as investors viewed the data as confirmation of a healthy economy.

Utilities (.SPLRCU), Materials (.SPLRCM), and Communications (.SPLRCL) suffered the greatest losses. Financials (.SPSY) and Technology (.SPLRCT) were the best performers.

For the week, the S&P 500 was up 1.32%, the Nasdaq was up 2.38%, and the Dow Jones was up 0.29%.

“This shows that rate cuts are not coming anytime soon. Rising bond yields are putting significant pressure on risk assets, including small caps,” said Sandy Villere, portfolio manager at Villere & Co.

“It’s all about interest rates. Interest rates may remain higher for longer than expected and investors will have to adapt to the new environment,” he added.

Markets reacted to the jobs data by changing their expectations about when the Fed would cut interest rates. After the data was released, traders speculated that the Fed’s interest rate cut to 5.5% from the current level of 5.25% would not begin until November. According to Fedwatch LSEG, the probability that the Federal Reserve will cut interest rates by 25 basis points in September fell from about 70% the previous day to 56%.

The Dow Jones Industrial Average (.DJI) fell 87.18 points (0.22%) to 38,798.99, the S&P 500 (.SPX) fell 5.97 points (0.11%) to 5,346.99, and the Nasdaq Composite Index (.IXIC) fell 39.99 points. Or 0.23% to 17,133.13.

GameStop (GME.N) shares fell 39% in volatile trading, coinciding with popular blogger Roaring Kitty’s first livestream in three years. The company announced a possible stock offering and quarterly revenue cuts.

Other names popular with individual investors, such as AMC Entertainment (AMC.N) and KOSS Corporation (KOSS.O), also suffered heavy losses, falling 15.1% and 17.4%, respectively.

Nvidia (NVDA.O) stock widened its losses from the previous session, sending its market capitalization below $3 trillion.

Lyft (LYFT.O) shares rose 0.6% after the company said it expects total bookings to increase 15% through 2027, the company announced after the close of trading on Thursday.

On the New York Stock Exchange (NYSE), declining stocks outnumbered advancing stocks by a ratio of 2.72:1. On the Nasdaq, 1,177 stocks advanced and 3,064 stocks declined, resulting in a decliner ratio of 2.6:1.

The S&P 500 recorded 17 new 52-week highs and five new lows, while the Nasdaq Composite recorded 34 new highs and 149 new lows. Total volume for shares traded on U.S. exchanges was approximately $10.75 billion, compared to an average of $12.7 billion over the past 20 trading days.

Low expectations of quick action from the Federal Reserve weighed on stocks, which closed lower. The MSCI World Stock Index (.MIWO00000PUS) fell 0.3% after hitting an all-time high of 797.48.

The two-year Treasury yield, a gauge of interest rate expectations, rose nearly 17 basis points to 4.8868% after six straight days of declines. The rise in bond yields is due to the decline in bond prices.

A change in interest rates was expected in September, especially after the European Central Bank (ECB) cut deposit rates from a record 4% to 3.75% on Thursday, in line with expectations.

The Bank of Canada on Wednesday became the first G7 bank to cut interest rates, following Sweden’s Riksbank and Swiss National Bank.

The employment report also changed the dynamics of euro zone interest rate expectations. Traders are expecting a 55bps cut this year from 58bps prior to the data.

The European Stoxx 600 (.STOXX), up nearly 10% since the beginning of the year, was down 0.2%.

The euro zone bond market also showed weakness, with the German 10-year yield rising 8 basis points to 2.618%.

In currency markets, the U.S. dollar rose 0.8% against a basket of major currencies, reversing a week of losses ahead of the jobs data. The euro fell 0.8% to $1.0802 after rising slightly the previous day.

Brent crude futures fell 0.6% to $79.36 per barrel. The strong dollar weighed on spot gold, which fell 3.6% to $2,290.59 per ounce.