Investing.com -- The Dow closed lower Thursday as data showing the job market continues to run hot sparked a flurry of bets on further Federal Reserve rate hikes, sending Treasury yields surging higher ahead of the monthly jobs report due Friday.
The Dow Jones Industrial Average fell 1.1%, or 366 points, the Nasdaq fell 0.8%, and the S&P 500 fell 0.80%.
Hot jobs market pushes Fed rate hike bets, Treasury yields higher
Private payrolls grew by 497,000 in June, well above the 267,000 seen a month earlier and topped economists’ expectations of 228,000.
The report overshadowed data showing weekly initial jobless claims rose more than expected, and job openings for May missed expectations, stoking fears that the Fed is likely to follow its guidance for two more hikes.
In a sign of further economic strength, U.S. services activity increased more than expected in June, driven by increased demand, though prices paid, a gauge of inflation, fell to more than three-year lows.
Treasury yields jumped in anticipation of more Fed tightening ahead, with the 2-year yield and 10-year yield topping 5% and 4%, respectively.
The prospect of a hike in July is nearly priced in at 93%, according to Investing.com’s Fed Rate Monitor Tool.
Energy leads losses despite oil recovery
Energy stocks led the broader market lower. EQT (NYSE:EQT), ConocoPhillips (NYSE:COP) and Hess Corporation (NYSE:HES) were down even as oil prices recovered from session lows following data showing a larger-than-expected weekly draw in U.S. weekly crude inventories.
U.S. crude inventories fell by 1.508 million barrels during the week ended June 30, above estimates for a drop of 983,000.
Consumer stocks lose footing as Homebuilders stumble
Consumer stocks were under pressure, dragging consumer stocks lower, pressured by a sea of red in homebuilder stocks on fears about demand as mortgage rates jumped to their highest level this year.
As of July 6, 30-year fixed-rate mortgages averaged 6.81% which was higher than 6.71% last week and 5.30% a year ago, driven by a “resilient economy, persistent inflation and a more hawkish tone from the Federal Reserve," Freddie Mac chief economist, Sam Khater, said.
BorgWarner (NYSE:BWA), however, was the bright spot in consumer stocks rising nearly 4% after Bank of America raised its price target on the automobile supplier to $67 from $54, amid expectations for a boost from improving auto sales.
Tech struggles, but Microsoft shows strength amid AI optimism; Meta's Threads sparks mania
Big tech struggled to shrug off the surge in Treasury yields that make it more expensive to own growth sectors of the market, but Microsoft Corporation (NASDAQ:MSFT) gained nearly 1% optimism about an AI-led boost persist.
Microsoft was the “best positioned” name in the software space to leverage and build share in the $90B generative AI growth opportunity by fiscal 2025, Morgan Stanley said, lifting its price target on the company to $415 from $355.
Meta, meanwhile, gave up its early-day gains despite launching its Twitter rival app Threads.
The newly launched platform attracted more than 30 million sign-ups since its launch Wednesday night, Meta CEO Mark Zuckerberg said Thursday.