The major domestic equity indexes were higher on Wednesday, with each of the major indexes closing at a record high, as expectations grew that the Federal Reserve would take a more dovish turn as a raft of data provided more evidence of a slowing economy.
The 10-year Treasury yields hit their lowest point since November 2016 at 1.939%, while euro zone yields tumbled to record lows on bets the European Central Bank’s next chief would stay a dovish course.
Data on Wednesday indicated that our trade deficit rose to a five-month high, while services sector data indicated a slowdown in activity. The reports come on the heels of data on housing, manufacturing, business investment and consumer spending that point to slowing economic growth in the quarter.
The defensive utilities, real estate and consumer staples indexes rose the most among the 11 major S&P sectors as the falling bond yields made stocks that pay high dividends more attractive. The dividend yield for the broad S&P 500 and the 10-year Treasury are nearly identical.
Traders currently see a 29.7% chance the Federal Reserve would cut borrowing costs by half a percentage point at its July 30-31 policy meeting, up from the 25% perceived chance on Tuesday and 24% a week ago. A cut of at least a quarter percentage point is viewed as a certainty.
Rising expectations for a rate cut, fueled by softer economic data and comments from global central banks indicating a more dovish stance helped the S&P 500 and the Dow post their best June performance in decades.
The Atlanta Fed on Wednesday trimmed its second-quarter GDP growth view to 1.3% on an annualized rate, down from 1.5% on Monday.
Additional data on the labor market showed the ADP National Employment Report, considered by some to be a precursor to the Labor Department’s more comprehensive monthly nonfarm payrolls data due on Friday, showed an increase of 102,000 jobs in June, well below consensus expectations.
Among stocks, Symantec rose 13.57%, the most on the S&P, after sources told Reuters that chipmaker Broadcom is in advanced talks to buy the cybersecurity firm. Broadcom fell 3.5%.
Tesla rose 4.61% after the electric carmaker set a record for quarterly vehicle deliveries after months of questions about demand for its luxury electric cars.
Trading volumes were thin due to shortened trading hours on Wednesday ahead of the July Fourth holiday. Approximately 4.15 billion shares changed hands on the major domestic exchanges, as compared to the 6.89 billion share daily average over the past 20 trading days.
Jobless Claims Decrease
The number of new applications for unemployment benefits fell more than expected last week, pointing to sustained labor market strength that should help support a slowing economy.
According to a report released by the Labor Department on Wednesday morning, initial claims for state unemployment benefits fell by 8,000 claims to a seasonally adjusted 221,000 claims for the week ended June 29. Data for the prior week was revised to show an additional 2,000 more claims than had been previously reported. The Labor Department said only claims for Virginia were estimated.
Claims data could become volatile in the coming weeks as auto manufacturers temporarily shut down assembly plants for summer retooling. Companies implement the plant closures at different times, which can throw off the model the government uses to remove seasonal fluctuations from the data.
Claims continue to be watched for signs of an increase in layoffs stemming from trade tensions between the United States and China. Rising risks to economic growth from the trade war, and low inflation, prompted the Federal Reserve to signal last month interest rate cuts as early as at its July 30-31 meeting.
The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose by 500 claims to 222,250 claims last week.
The claims data has no bearing on June’s employment report, which is scheduled for release on Friday. Nonfarm payrolls probably increased by 160,000 jobs last month after rising by only 75,000 in May, according to a Reuters survey of economists. The unemployment rate is forecast unchanged near a 50-year low of 3.6% in June for a third straight month.
The economy is slowing as last year’s massive stimulus from tax cuts and more government spending fades.
Manufacturing is struggling, the trade deficit is widening again, consumer confidence is ebbing, and the housing sector remains mired in a soft patch.
The Atlanta Fed is forecasting gross domestic product to rise at a 1.5% annualized rate in the April-June quarter. The economy grew at a 3.1% pace in the first quarter following a temporary boost from exports and an accumulation of inventory.
Thursday’s claims report also showed the number of people receiving benefits after an initial week of aid fell 8,000 to 1.69 million for the week ended June 22. The four-week moving average of the so-called continuing claims slipped 1,750 to 1.69 million.