US stocks continued their downward trajectory in Wednesday's midday trading session, with the Dow Jones Industrial Average falling more than 400 points.
Investors are assessing the recent record-breaking rally and monitoring the latest developments concerning Middle East tensions. The ADP National Employment Report for May showed private sector payrolls increased by 122,000, surpassing expectations. Concerns that US-Iran conflict could sustain inflationary pressures pushed oil prices and US Treasury yields higher.
The Dow Jones Industrial Average dropped 417.33 points, or 0.81%, to 50,880.46. The Nasdaq Composite fell 225.36 points, or 0.83%, to 26,868.54. The S&P 500 index declined 41.20 points, or 0.54%, to 7,568.58.
Oil prices advanced following a new round of mutual strikes between the US and Iran. In early Wednesday trading, West Texas Intermediate crude futures rose 2% to around $96 per barrel, while Brent crude gained 2% to approximately $98 per barrel.
Late Tuesday, Kuwait's military stated on social media that its air defense systems were "intercepting hostile targets." The US Central Command subsequently stated that US forces successfully intercepted Iranian ballistic missiles and drones and conducted a "defensive strike" on Qeshm Island "in response to Iranian attack attempts in the Middle East."
The US President also stated that Iran has agreed not to possess nuclear weapons, but added that "they may change their minds."
As oil prices climbed, US Treasury yields rose, with the 10-year yield approaching 4.5% and the 30-year yield nearing 5%. This move also followed a robust ADP employment report.
Shares of US private equity firms were a drag on the market after Swiss private equity firm Partners Group announced it would limit investor redemptions from one of its funds. KKR & Co. fell 6%, while Blackstone Inc. declined 5%.
In contrast, shares of Broadcom Inc. moved higher ahead of its earnings report.
The major indices had hit record highs on Tuesday. The broad S&P 500 index rose 0.13%, closing above the 7,600 level for the first time. The Dow gained 228.91 points, or 0.45%. The Nasdaq Composite edged up 0.03%.
Megan Shue, Chief Investment Strategist at Wilmington Trust, noted that if the S&P 500 closes higher this week, it would mark its tenth consecutive weekly gain, the longest such streak since 1985. She suggested that as summer begins, the market might take a breather.
"The market momentum is very strong, and there are plenty of good reasons for that, including a lot of optimism and robust demand for the AI investment cycle. But we are entering a phase that follows the relatively past earnings season—which was an extremely positive catalyst for the market," she said. "Now we are facing the summer lull. Trading activity may slow down somewhat, and there are still many geopolitical risks ahead."
"I'm not necessarily predicting a sharp reversal in the market, but I think it's very reasonable for the market to pause here, perhaps even see a modest pullback, and introduce more volatility during the summer months," Shue added.
On the economic data front Wednesday, the ADP report for May indicated private sector employment increased by 122,000, exceeding forecasts.
ADP reported businesses added 122,000 jobs in May, up from a revised 105,000 in April and better than the Dow Jones consensus estimate of 110,000.
Unlike previous months where job gains were concentrated in a few sectors like healthcare, the growth was more broad-based this time.
Education and health services led again, adding 57,000 jobs. Trade, transportation, and utilities increased by 36,000. Professional and business services contributed 11,000. Construction and leisure and hospitality each added 8,000.
The ADP report Wednesday showed a solid pace of private-sector hiring in May, providing further evidence of a steady labor market.
The payroll processor said businesses added 122,000 jobs in May, up from a downwardly revised 105,000 in April and beating the Dow Jones estimate of 110,000. May marked the strongest month for job growth since January 2025. The April figure was revised down by 4,000.
In contrast to prior months where gains were concentrated, the increase was widespread. Eight of the 10 industries tracked by ADP posted gains, and hiring was evenly distributed by company size and region.
Education and health services again led the way, adding 57,000 positions. Trade, transportation, and utilities grew by 36,000. Professional and business services contributed 11,000. Construction and leisure and hospitality each added 8,000.
The information services sector shed 9,000 jobs, potentially an effect of the AI boom, while natural resources and mining also reported a loss of 3,000.
"May's hiring was more broad-based than it's been over the past few years. The labor market continues to show sustained momentum heading into the summer hiring season," said Nela Richardson, chief economist at ADP.
Small businesses with fewer than 50 employees led the gains, adding 67,000 jobs. Large firms with 500 or more employees added 40,000. Medium-sized businesses contributed 17,000.
Regarding wages, annual pay gains for job-stayers held steady at 4.4% from April. Pay growth for job-changers decelerated slightly to 6.5%.
This report comes two days before the Bureau of Labor Statistics releases the May nonfarm payrolls data. Wall Street consensus expects an addition of 80,000 jobs for May, following a 115,000 increase in April, with the unemployment rate holding steady at 4.3%.
Federal Reserve officials will be closely watching the employment data ahead of their policy meeting scheduled for June 16-17. Markets have almost fully priced in the central bank holding the benchmark interest rate steady in the 3.5% to 3.75% range.
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