Dow erases loss as cyclical stocks push higher following upbeat data on service sector and jobs

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© Angela Weiss/AFP/Getty Images

MARKET SNAPSHOT

© Angela Weiss/AFP/Getty Images Angela Weiss/AFP/Getty Images

The Dow Jones Industrial Average erased an early loss of more than 260 points Thursday, turning slightly higher after upbeat data on the service sector and jobs boosted stocks set to benefit from the reopening of the economy.

How are stock benchmarks performing?

  • The Dow Jones Industrial Average was up 38.85 points, or 0.1%, at 34,639.23.
  • The S&P 500 was down 11.02 points, or 0.3%, to 4,197.10.
  • The Nasdaq Composite slumped 124.04 points, or 0.9%, to 13,632.29.

On Wednesday, the Dow rose 25.07 points to eke out a fifth straight gain; the S&P 500 climbed 6.08 points, or 0.1%, to 4,208.12; the Nasdaq Composite Index advanced 19.85 points, or 0.1%, to 13,756.33.

What’s driving the market?

The Institute for Supply Management said its services survey rose to a record 64% in May from 62.7% in April. Also Thursday, IHS Markit said its final U.S. services purchasing managers index reading came in at 70.4 in May, its highest level since data began in 2009. A figure above 50 indicates growth in activity.

“The summer services revival is starting to take hold. Looking ahead, reopenings and rising confidence that the U.S. has effectively contained the pandemic will fuel a services boom,” said Oren Klachkin, lead U.S. economist at Oxford Economics, in a note.

Cyclical stocks, which stand to benefit most as the economy picks up steam, were top performers Thursday. The S&P 500 energy sector rose 0.5%, while financials, which stand to gain as bond yields rise, were up 0.6%. Industrials gained 0.2%.

But the main event for the week will be the release Friday of the May jobs report, particularly after a much weaker-than-expected rise in April payrolls underlined concerns about labor shortages and inflationary pressures.

Read: ‘Skittish is an understatement’ says economist as May jobs report looms for U.S. markets

Investors were sifting a raft of jobs-related data released Thursday for clues. Private-sector employment jumped by 978,000 in May, according to the ADP National Economic Report, well above forecasts from economists surveyed by The Wall Street Journal who expected a gain of 680,000 jobs. Economists noted, however, that the ADP report hasn’t been a reliable guide to official jobs data over the course of the COVID-19 pandemic.

Meanwhile, weekly data on applications for unemployment benefits also painted a positive picture for the labor market. First-time claims for benefits fell to 385,000 last week, the first reading below 400,000 since the pandemic began.

The upbeat data was seen weighing on tech and other growth-oriented stocks that are more sensitive to rising interest rates.

“The U.S. economy is roaring back to life amid a successful vaccine program and the reopening of businesses as pandemic restrictions are lifted. These data points bode well for tomorrow’s nonfarm payrolls which will be key in deciding the Fed’s next steps,” said Fiona Cincotta, senior financial markets analyst at City Index.

Expectations of an earlier Federal Reserve move to tighten monetary policy as economic growth speeds up is reflected in a stronger dollar and weakness in high-growth technology stocks, which are more sensitive to interest-rate expectations, she said.

The Federal Reserve’s Beige Book, released on Wednesday, showed that the economy was experiencing moderate growth as it emerged from the COVID pandemic, as vaccinations and the easing of lockdowns playout, but it also highlighted supply-chain disruptions and labor shortages that could intensify fears of inflation.

The Fed’s policy makers have been saying that they expect inflation to be transitory. However, market participants say the Fed has been laying the groundwork for discussions around scaling back its accommodations if the economy overheats.

Although the broader market moves have been subdued, so-called meme stocks, which have been heavily influenced by social media and not financial fundamentals, have been on a tear, including AMC Entertainment Holdings GameStop Corp. and Bed Bath & Beyond raising concerns anew about bubbles forming in parts of the financial system amid the low-interest-rate environment. Those stocks were getting whipsawed Thursday, however, after AMC announced plans to sell a slug of new shares.

Read: Here’s AMC’s blunt new warning to prospective buyers of its new stock offering

Which companies are in focus?

  • AMC shares plunged more than 30% after it said Thursday morning that it plans to raise cash in a sale of up to 11.55 million shares from time to time through an equity-distribution agreement with B. Riley Securities Inc. and Citigroup Global Markets Inc. AMC shares were up 3,000% year-to-date through Wednesday’s close. Shares were briefly halted due to volatility.
  • Tesla Inc. TSLA is recalling nearly 6,000 cars because brake caliper bolts may be lose and cause a loss of tire pressure, Reuters reported. Tesla shares fell 0.8%.
  • Shares of Express Inc. EXPR fell 24%, after the apparel retailer reported a narrower-than-expected fiscal first-quarter loss and revenue that rose above forecasts, as the company experienced an “inflection point” after Easter.
  • BJ’s Wholesale Club Holdings Inc. BJ said Thursday it is now offering Citizens Pay, a buy-now-pay-later payment option for purchases of more than $99. Shares were up 1.1%.
  • Furniture retailer Conn’s Inc. shares CONN soared 22%, after the company posted first-quarter earnings that crushed expectations. 
  • Delta Air Lines Inc. on Thursday said it expects to generate a pretax profit in the second half of 2021, driven by recovering demand for leisure, corporate and trans-Atlantic flights after a long period of weakness caused by the coronavirus pandemic. Shares fell 2.7%.
  • American Airlines Group Inc. said Thursday it still expects second-quarter system capacity, as measured per total available seat miles, to be down 20% to 25%, and for revenue to be down about 40% compared with the second quarter of 2019, the year before the pandemic decimated travel. Shares declined 1.8%.

What are other markets doing?

  • The yield on the 10-year U.S. Treasury note rose 2.6 basis points to 1.618%. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index a measure of the currency against a basket of six major rivals, rose 0.7%.
  • Oil futures gave up early gains, with the U.S. benchmark down 0.8%% at $68.27 a barrel, while gold futures retreated, falling 2%.
  • In European equities trading, the pan-Continental Stoxx Europe 600 was flat, while London’s FTSE 100 dropped 0.5%.
  • In Asia, the Shanghai Composite fell 0.4%, while the Hang Seng Index dropped 1.1%; Japan’s Nikkei 225 rose 0.4%.
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