Wall Street’s strong rally showed some signs of slowing down on Wednesday amid fresh updates pointing to potential challenges for the U.S. economy.
In morning trading, the S&P 500 saw a marginal rise of 0.1%, having recently come close to its record peak, within 2.8% of its all-time high. The Dow Jones Industrial Average increased by 33 points or 0.1%, and similarly, the Nasdaq composite was up by 0.1% as of 10:15 a.m. Eastern time.
However, the bond market reacted more vigorously, with Treasury yields falling in response to two reports indicating weaker-than-anticipated economic activity. One survey outlined a contraction in services sectors, like retail and finance, opposed to economists’ forecasts of growth. Businesses, per the Institute for Supply Management, expressed challenges in planning due to tariff uncertainties.
Another insight came from a report highlighting that private employers hired significantly fewer workers last month than expected. ADP reported only 37,000 new hires, a stark decrease from the 60,000 seen the previous month.
These could be concerning signals for the forthcoming more detailed jobs report from the U.S. Labor Department, a key release watched closely each month on Wall Street. Thus far, the U.S. labor market has shown remarkable strength despite years of high inflation and tariffs under President Donald Trump’s administration. A weakening in the labor market could potentially affect the broader economy.
It should be noted, however, that the ADP report is not always a reliable predictor of the Labor Department’s findings.
“Whether this report is accurate or not, traders and investors will read today’s number as a dark result for trading today,” stated Carl Weinberg, the chief economist at High Frequency Economics. “This may be the tip of an iceberg, but it also could be a false start.”
Following these economic reports, traders began anticipating a potential interest rate cut by the Federal Reserve later in the year to bolster the economy, which contributed to the decline in Treasury yields. The weaker job data prompted President Trump to urge Fed Chair Jerome Powell to quickly reduce rates.
Trump stated on his Truth Social platform that Powell should “LOWER THE RATE,” citing Europe’s frequent rate cuts. The Fed has not lowered rates this year after previous reductions last year, mostly holding off to observe the tariff impacts on the economy and inflation. Though rate cuts could boost economic activity, they also risk elevating inflation.
Additionally, longer-term Treasury yields have been rising recently due to investor concerns over potential increases in U.S. government debt, driven by planned tax cuts under negotiation in Congress.
In stock-specific news, Wells Fargo gained 1.7% following the Federal Reserve’s removal of restrictions related to the bank’s previous sales and banking controversies. Wells Fargo has been working to revamp its public image and regain regulatory confidence.
Meanwhile, CrowdStrike, a cybersecurity firm, fell 5.3% despite revealing stronger-than-expected quarterly profits, as its revenue slightly missed Wall Street’s projections, as did its current quarter revenue forecast.
Globally, stock indexes moved higher across Europe and Asia as anticipation grew for updates on trade discussions that might lead to tariff reductions by Trump. Such prospects have played a significant role in the recovery of U.S. stocks, which had dipped around 20% below their records two months ago.
Despite these developments, uncertainties remain, with Trump commenting on the challenges in negotiating with China’s leader, Xi Jinping. The European Union’s prime trade official, Maroš Šef?ovi?, met with U.S. Trade Representative Jamieson Greer amidst talks at the Organisation for Economic Cooperation and Development.
In South Korea, the Kospi index surged 2.7% leading international gains after the election of liberal opposition candidate Lee Jae-myung as president. Lee’s administration seeks to navigate a period of political instability following the ousting of conservative leader Yoon Suk Yeol, focusing on government spending and U.S. trade negotiations.
The bond market observed a dip, with the 10-year Treasury yield decreasing to 4.38%, down from 4.46% the previous day, while the two-year Treasury yield slipped to 3.89% from 3.96%.