Strong Economic Data Sends Stocks Reeling

Bay Street and Wall Street tumbled lower on Thursday, July 6 after strong economic data out of the U.S. suggested the labour market remains resilient, pointing to yet another interest rate hike. Data from payroll-services firm ADP showed that private payrolls jumped to 497,000 in June, more than double the 220,000 Wall Street analysts were expecting. The June data marks the biggest jump in private payrolls since July of 2022. The number is also up significantly from the prior month’s 278,000 gain. The gains were fairly broad based too, with leisure and hospitality leading the jobs growth with 232,00 new hires, followed by construction with 97,000, trade and transportation and utilities adding 90,000, and education and health services with 74,000 hires. The ADP report is jointly developed with the Stanford Digital Economy Lab and a closely watched employment and economic indicator. Another report, by outplacement firm Challenger, Gray & Christmas, showed that U.S.-based companies announced the lowest number of layoffs in eight months. According to the report, U.S.-based employers cut 40,709 jobs in June, down 49% from May’s numbers.

Why Is Strong Economic Data Bad for Stocks?

The red-hot labour market reflects a resilient U.S. economy. This in spite of 500 basis points (5%) interest rate hikes announced by the U.S. Federal Reserve since March 2022. Keep in mind, the Federal Reserve has embarked on its fastest monetary policy tightening campaign in more than four decades to cool inflation. For this to work, the job market has to take a hit. But it isn’t. As a result, the Federal Reserve has no choice but to raise interest rates again. The Federal Reserve will make its next interest rate policy announcement in late July, but already, investors believe there is a whopping 92% chance that the central bank will raise interest rates by another 25-basis points. This would lift the Federal fund’s rate target to a range of 5.25% to 5.5%. On the plus side, a strong labour market and demand for new hires continues to suggest that any recession will be mild and short lived. In effect, the Federal Reserve will have achieved its goal of a soft-landing.

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Normally, investors cheer strong economic data. But not in a high inflationary environment where central banks are doing everything they can to tame inflation. The fact is the U.S. and Canadian economies remain resilient despite aggressive rate hike policies. This will leave the Bank of Canada and U.S. Federal Reserve no choice but to raise interest rates even further. How will this impact stocks? Ask the trading professionals at Learn-To-Trade.com. Learn-To-Trade.com is Canada’s oldest and leading provider of stock market trading courses. Over the years our professional traders have taught tens of thousands of investors, of every skill level, how to trade more confidently and profit more consistently. At Learn-To-Trade.com, we also understand that investors learn at their own pace and/or may want to spend more time with a certain investing strategy. That’s why we provide a unique,          Lifetime Membership that allows you to re-attend any part of the program as often as you’d like. To learn more about Learn-To-Trade.com’s stock market trading courses, contact us at                416-510-5560 or by e-mail at info@learn-to-trade.com.