Topline
Ahead of a critical employment report, stocks fell on Thursday following a slew of data points suggesting the labor market remains strong despite widespread layoffs at major tech firms, further signaling to investors that the Federal Reserve’s campaign to tame inflation by slowing down the economy may be more aggressive than previously feared.
“The labor market is strong, but fragmented,” one economist said after Amazon announced it will … [+]
Key Facts
Despite trading in positive territory early Thursday, the Dow Jones Industrial Average fell about 300 points, or 0.8%, to 32,970 by 1:50 p.m. ET, while the S&P 500 and tech-heavy Nasdaq shed 0.9% and 1%, respectively.
Losses piled on throughout the day after payroll processor ADP reported private employers added 235,000 jobs in December—much better than the 153,000 economists were expecting.
“The labor market is strong, but fragmented,” ADP chief economist Nela Richardson said in a statement, noting small and medium-sized businesses saw a resurgence in job growth last month, adding nearly 400,000 jobs, while large establishments reported 151,000 fewer jobs.
Jobless claims reported Thursday also fell short of economist projections, and according to career services firm Challenger, job cuts last month fell 43% from November—a sign the overall economy is still creating jobs despite employers—largely in the technology sector—”actively planning for a downturn,” the firm’s Andrew Challenger says.
“This latest round of data confirms the Fed’s messaging that more rate hikes are coming,” Oanda analyst Edward Moya wrote in a Thursday note, also pointing to Amazon’s announcement of worse-than-expected layoffs—totaling more than 18,000 cuts—as evidence concerns over a potential recession could linger “for a while longer,” hitting tech stocks particularly hard.
What To Watch For
The Labor Department will shed further light on the state of the job market when it releases an employment report for December on Friday morning. On average, economists expect the economy added about 203,000 jobs. Much more than that would provide additional fodder for the Fed to keep interest rates higher for longer, as officials continue to warn—further slowing down the economy in a concerning sign for investors.
Key Background
After losing more than 20 million jobs at the start of the pandemic, the labor market forcefully led the economic recovery and has remained strong despite some sectors taking a hit, as the Fed raises interest rates, which work to tame inflation by slowing down the economy. Fed officials have long pointed to the labor market’s strength as evidence that the economy can withstand additional rate hikes, and investors have been nervous about the potential implications—particularly with the stock market already feeling the burn. After surging nearly 27% in 2021, the S&P tumbled 19% last year.
Tangent
Shares of Amazon fell nearly 2% on Thursday, pushing the ecommerce monolith’s stock back toward a nearly three-year low of $81.70; shares have plummeted 49% over the past year, even worse than the Nasdaq’s 32% decline.
Further Reading
Source: https://www.forbes.com/sites/jonathanponciano/2023/01/05/dow-falls-400-points-as-worsening-layoffs-confirm-tech-selloff-could-linger-a-while-longer/