An unexpected decline in private sector payrolls, the first decrease in two years, has investors revisiting the outlook for the broader labor market.
US stocks were flat, erasing pre-market losses after a report showing an unexpected decline in employment raised concerns of slowing economic growth ahead of a more widely followed gauge of labor due Thursday.
The S&P 500 Index was flat and the Nasdaq 100 rose almost 0.2% at 9:48 a.m. in New York. The Russell 2000 was also little changed.
Private-sector US payrolls unexpectedly decreased by 33,000 last month following a downwardly revised 29,000 gain in May, according to ADP Research data released Wednesday, the first decline in more than two years.
“The downside surprise renewed fears of a weaker labor market, pushing pre-market futures lower,” Steve Sosnick, chief strategist at Interactive Brokers.
The stock rally hit a wall as traders await a key nonfarm payrolls report on Thursday and news on trade deals ahead of the July 9 tariff deadline. In the meantime, US President Donald Trump threatened Japan with tariffs of up to 35%, fueling fears of a worst-case scenario. He also said he is not considering delaying his July 9 deadline and renewed his threat to cut off talks and impose levies on several nations.
The global equity rotation away from US dominance and toward international markets paused in June, and correlations suggest that US outperformance may persist in the short run, but fundamentals still favor international markets this year, Gina Martin Adams, chief equity strategist at Bloomberg Intelligence wrote in a note.
For now, US stocks are hovering near record highs, and their recent move higher has sparked a swift jump in a Barclays Plc measure of the market’s “irrational exuberance” — a phrase coined by former Federal Reserve Chair Alan Greenspan to describe a situation where prices exceed assets’ fundamental values. The one-month average on the proprietary gauge has swung back into the double-digits for the first time since February — reaching levels that have signaled extreme frothiness in the past.
Within US stocks, some of the riskiest corners of the market got a bid. The Russell 2000 is flat after posting a 1% gain yesterday.
“The reason for this rotation, in our opinion, came from the fact that the tech group has become overbought,” Matt Maley, chief market strategist at Miller Tabak + Co. wrote. “Most of the mega-cap tech stocks have become quite expensive once again.”
Goldman Sachs’ High Beta Momo Index, which is long high-momentum winners and short the losers, just posted its biggest one-day drop since China’s DeepSeek rocked the AI trade in January.
Still, the small cap index hasn’t reached a new high in 913 days, the third-longest stretch dating back to the 1970s, according to data from Aaron Nordvik, UBS Securities head of macro equity strategy.
Among single-stock movers, Tesla Inc. shares rose 2.80% as the company saw its first increase in vehicle deliveries from its Shanghai factory this year. Centene Corp. tumbled 35.85% after the health insurer pulled its 2025 guidance, citing insurance market trends that veered from its assumptions and threaten $1.8 billion in revenue. Apple Inc. shares ticked higher 2.10% after Jefferies raised its recommendation on the tech giant to hold from underperform.
Elsewhere, stocks of some of Wall Street’s largest lenders including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. rose after banks boosted their dividends.