Dow struggles for 3rd record as broader market sinks after ADP private-sector jobs report and ahead of Fed minutes

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By Steve Goldstein and Mark DeCambre

The ADP report showed 807,000 private-sector jobs were created in December, more than double expectations

U.S. stock indexes traded flat to lower early Wednesday, with information technology stocks pressured anew, ahead of an account of the Federal Reserve’s last policy gathering in 2021.

Softness in trade held after a report on private-sector employment came in stronger than expected, before the closely watched report on the labor market on Friday is released.

What are stock benchmarks doing?

On Tuesday, the Dow rose 215 points, or 0.6%, to close at a record 36,800, while the S&P 500 fell less than 0.1% and Nasdaq Composite dropped 1.3%.

What’s driving markets

Markets were tilting mostly lower Wednesday morning, with tech stocks leading the losses, as investors scooped up energy shares , materials and financial shares in the early stretch of 2022.

Wall Street was digesting a report on private payrolls, which showed that 807,000 jobs were created in December, according to the ADP National Employment Report, higher than forecast for a gain of 375,000, based on average estimates from economists surveyed by The Wall Street Journal.

“Jobs, jobs, jobs. Today through Friday, Wall Street will be obsessed with jobs reports and their likely influence of inflation and interest rates,” wrote Sam Stovall, chief investment strategist at CFRA Research, in emailed comments.

Strategists use the ADP report to get an early read on the Labor Department’s report on private payrolls, which are scheduled to be released in about 48 hours. The private-sector report hasn’t been an accurate predictor of the Friday jobs report. However, the ADP report is watched because investors have become more attuned to the health of the jobs market amid the spread of the omicron variant of the coronavirus that causes COVID-19, a disease that has pushed much of the world into an uncertain phase of the pandemic, even if evidence suggests that the illnesses caused by the new strain are milder than other variants.

The labor market and the outlook for inflation are two factors that policy makers at the Federal Reserve will be observing closely as it sets up for the new year.

“Should the jobs report show stronger-than-expected additions (currently estimated at 440k) and a sharp drop in the unemployment rate (now estimated at 4.2%) should put pressure on growth stocks,” Stovall wrote. Economists surveyed by The Wall Street Journal look for nonfarm payrolls to show a December rise of 422,000.

Another important market driver in 2022 has been the move higher in yields, with the 10-year yield surging over 17 points over the first two trading days of 2021.

Against that backdrop, investors on Tuesday boosted value stocks including in the financial and industrial sector, and shunned technology plays, which are more yield sensitive.

“What is really amazing is the speed and magnitude these names have been taken down, while the major indices are near all time highs,” said Matthew Tuttle, chief investment officer of Tuttle Capital Management, referring to growth stocks.

The minutes from the latest Federal Open Market Committee meeting in December are due at 2 p.m. Eastern Time and Tuttle said they could influence the market, given the focus on rising interest rates and higher inflation at the moment.

At the Dec. 14-15 meeting, Fed policy makers agreed to speed the wind-down of the central bank’s monthly asset purchases, and projections issued by the central bank point to as many as three increases to interest rates if tapering of asset purchases is completed in March.

-Steve Goldstein

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(END) Dow Jones Newswires

01-05-22 0952ET

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