Dow Jones Industrial Average Forecast: Rise in job openings sends DJIA plunging as Treasury yields soar
The Dow Jones Industrial Average (DJIA) opened higher on Wednesday, up 0.2%, as traders test whether Tuesday’s crash was overdone. The market is digesting the first time in history that a US Speaker of the House was voted out of office and how that will affect current budget talks. Additionally, the Nonfarm Payrolls (NFP) report on Friday has many market participants expecting a market-negative result of rising employment numbers.
The Dow closed another 1.29% lower on Tuesday and is already down further in just two trading sessions than the entirety of last week, when it sold off 1.34%. The DJIA is now down 7.5% since its late July range high.
Tuesday’s loss of confidence was due to JOLTS Job Openings data for August, which was much more robust than expected. Analysts had expected the reading to drop from July’s 8.9 million to 8.8 million in August. Instead, the August print came above 9.6 million. This data overshadowed last week’s reduced inflation print from the Personal Consumption Expenditures report, and many observers now think it a greater likelihood that the Federal Reserve raises rates before the year is out.
That news sent Treasury yields zooming higher, with 30-year Treasuries reaching 5% for the first time since 2007. Higher US Treasury yields often correlate with a sell-off in the S&P 500 as the higher yield gives them a better risk-return profile than the equity market. The 30-year has fallen 1.2% on Wednesday at the time of writing, dropping back to 4.88%.
Dow Jones News: McCarthy out as House Speaker
Late Tuesday, Speaker of the House Kevin McCarthy (R-CA) was ousted from his role – the first time this has occurred in US history. Normally, House Speakers leave their roles due to their political parties losing the majority or deciding to retire.
This time it occurred because a small cadre of his Republican caucus chose to vote him out on the pretense that he had used Democratic Party votes to pass a continuing resolution to fund the federal government last week. With the continuing resolution, the federal government was set to shutdown operations last Sunday. Many pundits think McCarthy’s opponents, like Florida Representative Matt Gaetz, purposefully caused last week’s budget impasse in order to force McCarthy to court the opposite side of the aisle. In that sense, it may have been a self-fulfilling prophecy, Gaetz wanted McCarthy to seek Democratic votes in order that Gaetz and his triggermen had a reason to bring McCarthy’s speakership to a vote.
Either way, last weekend’s continuing resolution, which funded the US federal government for 45 days, will run out in mid-November. That means the House of Representatives has no leader at a critical time when it needs to negotiate 12 separate spending bills for longer-term funding.
Before last week’s last-minute continuing resolution, ratings agencies had already telegraphed that a federal government shutdown would lead them to downgrade US government debt. This move could further raise Treasury yields, thus hurting equity values, as some investors on the margin would certainly decide to sell off their Treasury holdings.
September Nonfarm Payrolls could disappoint with higher reading
Due to the JOLTS data from Tuesday, the market is poised for Friday’s Nonfarm Payrolls reading for September to jump above the 170K that analysts have been expecting. Recent months have seen the NFP slinking below the 200K level that analysts believe is roughly neutral. August saw a reading of 187K.
However, before the stock exchanges opened on Wednesday, ADP reported its Employment Change reading for September. The print arrived at 89K, way under the 153K that economists expected and August’s 180K reading. The ADP release is often uncorrelated with the more stringent NFP data, but it will make traders wonder.
For the NFP, both June and July’s data was revised lower after initially much higher readings. June’s initial reading showed 209K net new hires but was later revised to 105K. July’s initial 187K reading was revised to 157K. These lower revisions are viewed positively by the market since reduced employment growth should cut the chances of inflation frightening the Fed into hiking interest rates still higher.
In addition to estimates for the number of new jobs, the NFP data from the Bureau of Labor Statistics also includes Average Hourly Earnings. This data is expected to grow 0.3% on a monthly basis and 4.3% on an annual basis. It grew at 0.2% MoM in August and 4.3% annually.