US stock markets continued their decline during Wednesday's early session, with the Dow Jones Industrial Average falling by 0.5%. Investors are assessing the recent record-setting rally while monitoring the latest developments in the Middle East. The US ADP report for May showed private sector employment increased by 122,000, surpassing expectations. Concerns that US-Iran tensions could sustain inflationary pressures are pushing both oil prices and US Treasury yields higher.
The Dow Jones dropped 258.79 points, or 0.50%, to 51,049.00; the Nasdaq Composite fell 146.28 points, or 0.54%, to 26,947.62; and the S&P 500 declined 27.69 points, or 0.36%, to 7,582.09.
Oil prices rose following a new round of mutual strikes between the US and Iran. In early Wednesday trading, West Texas Intermediate crude futures gained 2% to around $96 per barrel, while Brent crude increased by 2% to approximately $98 per barrel.
Late Tuesday, Kuwait's military announced on social media that its air defense systems were "intercepting hostile targets." Subsequently, US Central Command stated that American forces had 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."
Former US President Donald Trump also commented, stating that Iran has agreed not to possess nuclear weapons, but he added that "they might change their mind."
As oil prices advanced, US Treasury yields climbed, with the 10-year yield nearing 4.5% and the 30-year yield approaching 5%. This movement 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 for one of its funds. KKR & Co. shares fell 6%, and Blackstone Inc. shares declined 5%.
In contrast, shares of Broadcom Inc. advanced ahead of its earnings report.
Major stock indices had reached all-time highs on Tuesday. The broad S&P 500 rose 0.13%, closing above the 7,600 level for the first time; the Dow gained 228.91 points, or 0.45%; and the Nasdaq Composite edged up 0.03%.
Megan Shu, 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 the market might take a brief pause as summer begins.
"The market momentum is very strong, and there are many good reasons for that, including a lot of optimism and strong demand for the AI investment cycle. But we are entering a phase following the recent earnings season—which was an extremely positive catalyst for the market," she said. "Now we're facing the summer lull. Trading activity could slow down a bit, 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 pull back slightly, and introduce more volatility during the summer months," Shu added.
On the economic data front Wednesday, the US ADP report for May indicated private sector employment increased by 122,000, exceeding forecasts.
ADP reported that businesses added 122,000 jobs in May, up from 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 in May was more broad-based.
Education and health services led the gains again, adding 57,000 jobs; trade, transportation, and utilities increased by 36,000; professional and business services contributed 11,000; and construction as well as leisure and hospitality each added 8,000.
The ADP report showed a solid pace of private-sector hiring in May, providing further evidence of a stable labor market.
The payroll processor stated that businesses added 122,000 jobs in May, higher than April's 105,000 and surpassing the Dow Jones estimate of 110,000. May marked the strongest month for job growth since January 2025. April's figure was revised down by 4,000.
In contrast to the concentrated growth in prior months, the expansion was more widespread. Eight of the ten industries tracked by ADP showed growth, and hiring was evenly distributed by company size and region.
Education and health services again led with an increase of 57,000 jobs; trade, transportation, and utilities rose by 36,000; professional and business services added 11,000; and construction along with leisure and hospitality each gained 8,000.
The information services sector lost 9,000 jobs, potentially an effect of AI growth, while natural resources and mining also reported a decrease of 3,000.
ADP Chief Economist Nela Richardson stated, "Hiring in May was broader than in the past few years. The labor market is still showing persistent momentum as we head into the summer hiring season."
Small businesses with fewer than 50 employees led the way, adding 67,000 jobs; large businesses with 500 or more employees increased by 40,000; and medium-sized businesses contributed 17,000.
Regarding wages, the annual pay growth for job-stayers held steady at 4.4%, unchanged from April. Pay growth for job-changers dipped slightly to 6.5%.
This report comes two days before the US Bureau of Labor Statistics releases the May nonfarm payrolls data. Wall Street widely expects an increase of 80,000 jobs for May, following a gain of 115,000 in April, with the unemployment rate holding steady at 4.3%.
Federal Reserve officials will be closely watching the jobs data ahead of their policy meeting on June 16-17. Markets have almost fully priced in the central bank keeping the benchmark interest rate unchanged in the 3.5% to 3.75% range.
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