US equities struggled to gain direction during Wednesday’s trading session after two labor data showed that the labor market remains tight amid ongoing inflation.
Wall Street awaits more testimony from Federal Reserve Chairman Jerome Powell, this time before the House Financial Services Committee.
The S&P 500 (^GSPC) fell 0.1%, while the Dow Jones Industrial Average (^DJI) fell 0.3%. Contracts on the tech-heavy Nasdaq Composite (^IXIC) fell near the flatline.
Bond yields fell a few inches alongside a stronger dollar. The yield on the benchmark 10-year US Treasury was up to 3.92% on Wednesday morning.
US stocks plummeted Tuesday after Powell said during his testimony to the Senate Banking Committee that interest rates could rise “higher” than previously expected as the Fed continues its dogged battle against inflation.
Powell’s comments on Capitol Hill caused a 1.5% sell-off in stocks, according to JP Morgan’s trading desk. Tuesday’s losses saw every sector fall, with financials and real estate posting the biggest drops on the day.
Treasury yields were higher, with 2-year yields tipping more than 5%, while the spread between 10- and 2-year U.S. Treasury yields reversed for the first time since September 1981. According to Deutsche Bank strategists, reaching this level signals that a recession could be or has occurred within a maximum of eight months.
“Powell’s speech indicates that the Fed will rely heavily on short-term data for upcoming interest rate decisions,” Michael Feroli, chief US economist at JP Morgan, wrote in a note Wednesday morning.
“With January macro data usually printing on the aggressive side, NFP Friday and CPI next Tuesday are the most critical catalysts for the Fed’s decision between 25bp and 50bp,” Feroli added.
On the economic data side, ADP’s monthly reading of private payroll growth rose 242,000 in February, beating consensus expectations for 200,000. ADP also tracked wage growth for retainers, which slowed to 7.2% last month, the slowest growth rate in the past year.
“There is a trade-off in the labor market right now,” writes Nela Richardson, ADP chief economist, in the press release. “We are seeing robust hiring, which is good for the economy and workers, but wage growth is still quite high. The modest slowdown in wage increases alone is unlikely to bring inflation down any time soon.”
Meanwhile, the US monthly international trade deficit rose to $68.3 billion in January, below the consensus deficit of $68.7 billion, as imports grew more than exports, according to the US Bureau of Economic Analysis and the US Census Bureau.
Another highlight on Wednesday morning was January’s job vacancy report, which grew to 10.82 million, above expectations of 10.54 million, the Bureau of Labor Statistics reported.
The February jobs report due Friday will provide more clues about the strength of the economy. Economists expect 215,000 new jobs to be added to the economy, a slower pace than the January blowout figure of 517,000 new jobs.
Unemployment is expected to remain stable at 3.4%. Another important point from the measurement is wage growth, with an expected increase in the average hourly wage of 0.3% on a monthly basis and 4.7% over the past year.
Occidental Petroleum Corporation (OXY) gained nearly 2% Wednesday morning in single stock moves after a filing showed that Warren Buffet’s Berkshire Hathaway bought nearly 6 million shares of the oil company in recent days, raising its stake in the company to 200, 2 million shares worth $12.2 billion.
The shares of CrowdStrike Holdings, Inc. (CRWD) rose 7% on Wednesday after the security software provider reported fourth-quarter numbers that beat analyst expectations and issued a stronger outlook for the fiscal first quarter.
Shares of Tesla (TSLA) fell nearly 2% as Berenberg analyst Adrian Yanoshik downgraded his rating for the stock from buy to hold, citing “based on misplaced fears of a price war – seems to have been accepted by the market,” noted Yanoshik op.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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