Stock Market Lower After July Jobs Soar; Western Digital Drags On Tech

Stock market indexes sold off on Friday after the July nonfarm payrolls report beat expectations by a country mile. Weak PC component guidance from hard drive maker Western Digital (WDC) added to pressure on tech stocks, with widely held names posting sizable losses.

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The Dow Jones Industrial Average traded lower by 0.3% just after the lunch hour while the S&P 500 was down 0.6%. The Russell 2000 small-cap index is bucking the downward tide, gaining 0.3%. The Nasdaq composite was down 0.9%.

Nasdaq volume has dropped 9% compared to Thursday, while the NYSE was near yesterday’s print.

Bonds sold off across all maturities, lifting the 10-year Treasury yield to 2.87%. Crude oil bounced strongly while gold sold off, dropping the yellow metal nearly 1% to $1,789. Inflation-sensitive copper rose 1.8% to $3.54.

Western Digital (WDC) is trading lower by 5.7% after warning that hard drive sales are declining at an accelerated rate, compared to pre-pandemic levels. Intel (INTC) and other PC component plays also sold off on the news.

Chip stocks traded lower as well, with the threat of Taiwanese supply disruptions adding to concerns about inflation and hardware sales.

Commercial banks rallied after the jobs report despite benchmark losses, on hopes that steady demand and rising rates will yield stronger profits. Dow component JPMorganChase (JPM) jumped nearly 3% while the SPDR S&P Bank ETF (KBE) was trading higher by 0.5%.

July Employment Surges Above Modest Expectations

A half-dozen Fed governors warned stock market participants this week about a 2022 version of Alan Greenspan’s “irrational exuberance.” The comments made perfect sense after nonfarm payrolls blew away expectations that 250,00 jobs would be added. Instead, nonfarm payrolls came out to 528,000. A hot jobs market fuels consumer and wage demand that invariably translates into higher inflation.

Hourly earnings eclipsed 0.3% monthly consensus, rising at a 5.2% annual rate. Bond yields shot higher on the news, on worries that much higher rates are needed to contain inflationary pressures.

Chairman Jerome Powell made it clear last week that demand has to shrink for inflation to return to historical levels. If that doesn’t happen, the Fed has little choice but to act more aggressively on interest rates.

Odds for a 75 basis point rate hike in September rose to 65.5%, from 34% just one day earlier. The Fed funds rate is now expected to peak at 3.6% in April 2023, a dramatic increase since last week’s 3.06% post-Fed print.

Friday Stock Market Highlights

Synopsys (SNPS), #16 on the IBD 50, rallied within 2% of the 377.70 buy point of a seven-month double-bottom base. The stock holds a bullish 98 Composite Rating and 97 EPS Rating.

The company has beaten quarterly estimates by double-digit percentages in the last three quarters while annual EPS has risen for six straight years. Look for that bullish streak to continue in 2023 and 2024, with projected 24% and 14% EPS growth, respectively.

Adtalem Global Education (ATGE), #48 on the IBD 50, broke stride, falling below its 21-day exponential moving average as shares fell 3.5%.

AMN Healthcare (AMN), #39 on the IBD 50, soared nearly 7% after reporting a 102% rise in earnings per share. The stock is forming a cup-with-handle pattern with a 125.04 buy point, although the handle is deeper than normal.

The stock is trading 7% below the pivot after Friday’s bullish surge.

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