Why the Weak ADP Jobs Numbers Were Good for Stocks

Credit: The Street
Published on July 3, 2019 - Duration: 01:25s

Why the Weak ADP Jobs Numbers Were Good for Stocks

The ADP jobs report Wednesday showed a miss of expectations, and Treasury yields fell and stocks went higher.

We know that, but how did stocks rise on bad economic data?

First, here are the facts.

ADP Jobs Report The ADP report showed that 102,000 jobs were added in the month of June, far below economists expectations of 140,000.

On Friday, the government will release the jobs report.

Unemployment is currently at 3.6%, a strong number.

Why Stocks Went Up The S&P 500 added 0.58%.

The Dow Jones Industrial Average added 0.42%.

The Nasdaq added 0.54%.

Usually, when the economy is pointing downward, stocks move down as well.

But the market already knows the economy is decelerating.

Now, investors are looking for a rate cut, and they want to see economic evidence the Fed will indeed cut rates, which the jobs data is indicating.

"The markets are really looking to corroborate economic evidence for a rate cut, so [Wednesday's] data could put some energy into this short trading day," Mike Loewengart, vice president of investment strategy at E*Trade wrote in a note.

"If you were betting your neighbor's money, you might bet here that the Fed will cut by 25 basis points in July and then obviously hold out the possibility of another rate cut possibly as early as September," Mark Hamrick, senior economic analyst at Bankrate told TheStreet after the ADP jobs report hit the wires.

Meanwhile, the 10-year treasury yield fell to 1.95%, its lowest level since late 2016, as bond investors expect a rate cut soon--meaning bond prices rose.

Usually, when bond prices rise, stocks prices fall, but in some pockets of time, like the one the U.S. is currently in, rising bond prices mean rising stock prices, as stock investors anticipate a rate cut.

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