Wall Street ended the week on a sour note as investors digested a stronger than expected May jobs report sending stocks lower. The U.S. labor market showed unexpected strength in May as payrolls increased by 172,000, more than economists’ forecasts of $88,000, while the unemployment rate held steady at 4.3%. The even stronger surprise was in the rearview mirror – March was revised up by 29,000 to 214,000, April by 64,000 to 179,000. Combined, the two months were 93,000 stronger than previously reported.
Healthcare was a big driver for new hires while the leisure and hospitality sector saw the most hiring. Those gains come amid the start of warm weather and the big U.S. travel season—factors that will likely fade later in the year. Which brings us back to the economy’s trap – For the Fed, which meets June 16–17, a labor market this resilient is yet one more reason not to cut interest rates.
For the week, the Nasdaq Composite fell 4.68%, and the S&P lost 2.59%, while the Dow lost 0.32%.
Future Wealth’s View
In our report last week titled “Lack of breadth”, we had stated that the concentration of technology stocks outperforming the market is concerning. As if on cue, banks and healthcare led this week while technology stocks fell. The prospect of interest rates remaining high does not bode well for the technology sector. We believe that last week could likely mark the beginning of a shift from technology to other sectors such as healthcare, financials and consumer staples.
Another big reason for the sell off in the market was due to the upcoming SpaceX’s $1.8 trillion initial public offering, slated for this Friday. Its exclusion from fast track entry into the S&P 500 likely means even more retail investors will need to be brought into the fold for the listing to find enough traction to justify its heady valuations. In addition, many of the institutional investors are cashing out on the gains in the tech sector to have enough funds on hand to participate in the Space X and upcoming IPOs by Anthropic etc.
The AI trade is wobbling as investors pull back from tech even as SpaceX fever is intensifying. SpaceX IPO is already 2x oversubscribed, meaning demand far exceeds supply for a company that is pricing its offering at 100x sales and no profitability.
Friday will provide the answer.