Benchmarks closed in the red on Friday following a lackluster jobs report, which in turn reduced June rate hike speculations. Decline in rate hike possibilities following weaker-than-expected domestic job data weighed on financials. For the week, key U.S. indexes closed mixed with the S&P 500 and Nasdaq ending in the green while the Dow finished in negative territory.
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The Dow Jones Industrial Average (DJI) decreased 0.2%, to close at 17,807.06. The S&P 500 fell 0.3% to close at 2,099.13. The tech-laden Nasdaq Composite Index closed at 4,942.52, losing 0.6%. However, the fear-gauge CBOE Volatility Index (VIX) decreased 1.2% to settle at 13.47. A total of around 7 billion shares were traded on Friday, slightly more than the last 20-session average of 6.9 billion shares. Advancers outpaced declining stocks on the NYSE. For 52% stocks that advanced, 45% declined.
According to the Bureau of Labor Statistics (BLS), the U.S. economy created a total of only 38,000 jobs in May, significantly lower than the consensus estimate of 203,000. Nonfarm payrolls registered its lowest increase since Sep 2010. The tally was also considerably lower than March’s downwardly revised job number of 166,000. The Labor Department also revised jobs additions downward in April by 37,000.
Meanwhile, the unemployment rate was 4.7% in May, reaching its lowest level since Nov 2007 and was lower than the consensus estimate of 4.9% and April’s rate of 5%. Labor force participation rate fell 62.6%, as 458,000 individuals quit jobs or gave up jobs searches, which is the primary reason behind the decline in unemployment rate.
Further, the average hourly earnings gained 0.2% or 5 cents in May from previous month’s figure to $25.59 per hour, in line with the consensus estimate. But, it was lower than April’s 0.4% increase while year-ago gains remained unchanged at 2.5%.
Separately, the Institute for Supply Management reported that ISM Services Index decreased from 55.7% in April to 52.9% in May, witnessing its biggest percentage fall since Feb 2014. Additionally, the reading was less than the consensus estimate of 55.3%. As per Markit the final services PMI, slumped from 52.8 in April to 51.3 in May.
Disappointing job reports reduced speculations over immediate rate hike possibilities this month, which in turn weighed on financials stocks. The Financial Services Select Sector SPDR (XLFS) fell 2.1% and was biggest decliner among the S&P 500 sectors. Top holdings from this sector such as Bank of America Corporation (BAC - Free Report) , Wells Fargo & Company (WFC - Free Report) and Citigroup Inc. (C - Free Report) declined 3.5%, 1.8% and 3.4%, respectively. Dow components JPMorgan Chase & Co (JPM - Free Report) and Goldman Sachs Group, Inc. (GS - Free Report) decreased 1.8% and 2.3%, respectively. The Financials Select Sector SPDR (XLF) also fell 1.4%.
However, decline in rate hike chances led the Utilities Select Sector SPDR (XLU) to gain 1.6% and was the biggest advancer among the S&P 500 sectors. Key utilities stocks including Sempra Energy (SRE - Free Report) , PPL Corporation (PPL - Free Report) , Southern Company (SO - Free Report) , American Electric Power Co., Inc. (AEP - Free Report) , Dominion Resources, Inc. (D - Free Report) and Duke Energy Corporation (DUK - Free Report) rose 2.6%, 1.9%, 1.7%, 1.8%, 2.1% and 1.4%, respectively.
Meanwhile, as per the U.S. Department of Commerce, new orders for manufactured goods increased 1.9% in April. This was above the consensus estimate of 1.3% and March’s’ reading of 1.7%.
Separately, oil prices decreased on Friday after Baker Hughes (BHI) reported that U.S. oil rig count increased from 316 to 325 last week. U.S. rig counts increased for the first time in eleven weeks and registered its highest rise since Dec 2015. WTI and Brent crude declined 1.1% and 0.8% to $48.62 a barrel and $49.64 per barrel, respectively. Decrease in oil prices led the Energy Select Sector SPDR (XLE) to fall 0.4%. Dow component Exxon Mobil Corporation (XOM - Free Report) fell 0.2%.
For the week, the Dow declined 0.4%, while the S&P 500 and Nasdaq rose 0.1% and 0.2%, respectively. Encouraging U.S. private sector jobs data, U.S. manufacturing data, housing and consumer spending data increased rate hike chances, which in turn raised speculations over stronger economic growth and had a positive impact on investor sentiment.
Also, healthcare sector gained on news that Johnson & Johnson’s (JNJ) will buy Vogue International LLC for $3.3 billion cash. Moreover, shares of Humana Inc. (HUM) and Aetna Inc. ( AET) also increased after the latter decided to sell $13 billion bonds to help its $34 billion deal to acquire Humana.
However, decline in oil prices had a negative impact on key U.S. indexes. Oil prices fell after UAE Oil Minister Suhail bin Mohammed al-Mazroui’s comments reduced possibilities of production freeze and OPEC members failed to come to any agreement regarding crude production freeze in a meeting last week. Both WTI and Brent crude fell 1.4% and 0.6% for the week.
Meanwhile, according to the Fed’s Beige Book, economic activity was modest in most districts of the U.S. Further, total vehicle sales increased 0.3% in May to 17.45 million, lower than 17.8 million year-over-year. Separately, Michael Kors Holdings Limited’s (KORS) posted better-than-expected fourth quarter earnings results.