US stocks held onto their losses late Wednesday, with the S&P 500 index down 0.5%. The market is digesting the recent record-setting rally and monitoring the latest developments in the Middle East conflict. The US May ADP report showed private sector employment increased by 122,000, exceeding expectations. Concerns that the US-Iran conflict could continue to push inflation higher sent both oil prices and US Treasury yields upward.
The Dow Jones Industrial Average fell 435.61 points, or 0.85%, to 50,872.18. The Nasdaq Composite dropped 198.09 points, or 0.73%, to 26,885.81. The S&P 500 declined 37.78 points, or 0.50%, to 7,572.00.
Oil prices rose following a new round of mutual strikes between the US and Iran. Early Wednesday, West Texas Intermediate crude futures were up 2% to around $96 per barrel, while Brent crude rose 2% to around $98 per barrel.
Late Tuesday, Kuwait's military announced on social media that its air defense systems were "intercepting hostile targets." The US Central Command later stated that US forces successfully intercepted Iranian ballistic missiles and drones and conducted a "defensive strike" on Qeshm Island "in response to Iran's attempted attacks in the Middle East."
US President Trump also commented, stating Iran has agreed not to possess nuclear weapons, but added "they could change their mind."
As oil prices climbed, US Treasury yields moved higher, with the 10-year yield approaching 4.5% and the 30-year yield nearing 5%. This move also followed a strong ADP employment report.
Shares of US private equity firms were a drag on the market after Swiss private equity firm Partners Group announced it was limiting investor redemptions from one of its funds. KKR & Co. shares fell 6%, while Blackstone Inc. shares dropped 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 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 that as summer begins, the market may take a breather.
"The momentum in the market 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 are facing the summer lull. Trading activity may slow down a bit, and there are still many geopolitical risks ahead."
"I'm not necessarily forecasting a sharp reversal, 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 May ADP report indicated private sector employment increased by 122,000, surpassing 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 again, adding 57,000 jobs. Trade, transportation, and utilities increased by 36,000. Professional and business services contributed 11,000, while construction and leisure and hospitality each added 8,000.
ADP's Wednesday report showed a solid pace of private-sector hiring in May, providing further evidence of a stable labor market.
The payroll processor said businesses added 122,000 jobs in May, higher than the 105,000 in April and exceeding 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.
The growth was more widespread, with eight of the ten industries tracked by ADP showing gains, and hiring was evenly distributed by company size and region.
Education and health services led with an addition of 57,000 jobs. Trade, transportation, and utilities increased by 36,000. Professional and business services contributed 11,000, while construction and leisure and hospitality each added 8,000.
The information services sector lost 9,000 jobs, a potential impact from the growth of artificial intelligence. Natural resources and mining also reported a decline of 3,000 jobs.
Nela Richardson, Chief Economist at ADP, stated, "Hiring in May was broader than it has been over the past few years. The labor market is showing continued momentum as we head into the summer hiring season."
Small businesses with fewer than 50 employees led the way, adding 67,000 jobs. Large firms with 500 or more employees added 40,000, while 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 edged down slightly to 6.5%.
This report comes two days before the US Bureau of Labor Statistics releases the May nonfarm payrolls data. Wall Street broadly expects an addition of 80,000 jobs in 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 employment data ahead of their policy meeting on June 16-17. Markets have almost fully priced in the central bank keeping its benchmark interest rate unchanged in the range of 3.5% to 3.75%.
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