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Why the Jobs Report Stopped the S&P 500 from Hitting 3,000

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Updated

Job numbers up, S&P 500 down

Today, the Bureau of Labor Statistics released the non-farm payroll data for June. The US economy added 224,000 jobs in June, much higher than the expected 160,000 and almost three times as much as May’s 75,000. However, the market didn’t seem impressed. The S&P 500 Index was down 0.35% at 2,985 at 12:45 PM ET, while the Nasdaq was down 0.39%.

Defensive sectors such as consumer noncyclical, healthcare, and utilities were underperforming the index. Defensive stocks such as Proctor & Gamble (PG), PepsiCo (PEP), and Johnson & Johnson (JNJ) were all in the negative. PG was down 0.91%, Pepsi was down 0.93%, and JNJ was down 0.89% as of 12:53 PM ET. The SPDR S&P 500 ETF (SPY), which tracks the S&P 500, was down 0.29% at 1:26 PM ET.

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Good news is bad news

There was a time when a good jobs report was well received. Back on May 3, when April’s job numbers beat expectations, the S&P 500 rose 0.96%. Almost a month earlier, On April 5, the S&P 500’s 0.46% gain was largely fueled by March’s strong non-farm payroll data.

However, as the trade war escalated in May and rumors of a rate cut started making the rounds, the markets began taking bad news as a good sign—making the proverbial lemonade out of life’s lemons. When the economy added just 75,000 jobs against the expected 185,000 in May, the market rejoiced on hopes of a rate cut. On June 7, when May’s dismal data was released, the S&P 500 jumped 1.05%.

The fine line

In June, the unemployment rate inched up to 3.7% as more people joined the workforce, pushing the labor force participation rate up by ten basis points despite the economy’s adding 224,000 jobs in the month.

The manufacturing sector, which is in an ongoing trade war with China and some other countries, was the wild card. The sector added 32,000 jobs in June after finishing the previous two months with dismal additions of 3,000 each. The auto sector added 6,200 jobs in June after 2,500 job losses in May. General Motors (GM) and Ford Motor Company (F), the two most prominent US automakers, were up today. GM was up 0.75% at 1:02 PM ET, while Ford was up 0.52% as of the same time.

The government added 33,000 jobs in June after posting 11,000 job losses in May.

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Bond markets react

Bond markets don’t generally like good news for the economy. The Fed may use today’s job data to justify why it shouldn’t cut the interest rate this month. The yield on ten-year Treasury bonds was up 8.6 basis points today upon the release of the jobs report. The 30-year yield was up 7.5 basis points. Bond yields and prices move in opposite directions. An increase in bond yields reduces bond prices.

Key Treasury ETFs were also down. The iShares 20+ Year Treasury Bond ETF (TLT) was down 1.41% at 1:20 PM ET, while the iShares 7–10 Year Treasury ETF (IEF) was down 0.63%.

Gold and crude oil

Gold was down 1.43% at just over 1,400 at 1:12 PM ET today. Crude oil futures were up 0.28% as of the same time.

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