Bulls Keep Control After ADP “Miss”

Today, Wall Street is eyeing a potential four-day win streak, with indices in the green as traders sift through fresh U.S. economic data. The Dow Jones Industrial Average inched up, adding 43 points or a modest 0.2%. Meanwhile, the S&P 500 moved forward by 0.4%, and the Nasdaq Composite advanced 0.6%. Chipmaker Nvidia contributed to the tech sector’s fourth consecutive day of gains with a 1.4% climb, while Apple’s share price increased over 1% following the announcement of a September 12 launch event, where the iPhone 15 is anticipated to be unveiled.

Markets are taking in disappointing payroll figures today, which fortified dovish hopes from tech traders. ADP reported that private employers added a mere 177,000 jobs in August, falling short of both July’s revised number of 371,000 and a Dow Jones estimate of 200,000. “This month’s numbers are consistent with the pace of job creation before the pandemic,” noted Nela Richardson, chief economist at ADP.

She continued, “We’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede.”

Such an underwhelming report surfaces amid debates over whether U.S. inflation can descend to 2% without causing a notable economic slowdown. The strength of the labor market has played a critical role in propelling the economy faster than most had anticipated for 2023. It’s worth noting that the Federal Reserve, having elevated rates to a 22-year peak in July, is poised for further hikes as indicated by Fed Chair Jerome Powell.

Though often considered a precursor to the Department of Labor’s monthly jobs report, ADP’s predictive reliability has diminished due to a change in its methodology last year. Concurrently, today saw a downward revision of the annual GDP growth forecast, now standing at 2.1% compared to a previous estimate of 2.4%.

Interestingly, investors seem to consider weaker economic data as a positive for equities for the second day in a row. “Traders and investors alike want to see ‘follow through’ in today’s market action,” Quincy Krosby, chief global strategist at LPL Financial, elaborated.

This sentiment echoes yesterday’s market rally, triggered by less-than-stellar consumer confidence numbers and a greater-than-anticipated drop in U.S. job openings for July. Such developments have fueled speculation that the Federal Reserve might soon soften its policy stance.

In corporate news, Hewlett-Packard shares tanked by 8% following a revenue shortfall in its quarterly earnings. In contrast, Insulet shares spiked 8.3% after CEO James Hollingshead augmented his personal stake in the company by 19.4%.

Sonu Varghese, global macro strategist at Carson Group, summed it up: “Any softness in economic data results in less upward pressure on yields, and that helps equities.” This aligns with a prevailing “bad news is good news” market mentality, particularly when anxieties over rates and Federal Reserve policy loom large.

September rate hike odds continue to fall as a result. According to the CME Group’s FedWatch tool, the market only sees an 11% chance of a rate increase in September. That’s down from 14.00% yesterday, and the odds could run lower again if Friday’s jobs report misses estimates as well, potentially pumping tech stocks – along with the general market – even higher.


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