Why the hot job market is scaring investors
Stocks continued their recent slide on Tuesday with the S&P 500 closing below its 100-day moving average for the second consecutive day -- the first time this has happened since October -- despite finishing with a fractional gain. The Dow Jones industrials lost 2.5 points to close at 17,764 for its fourth straight daily loss.
Crude oil gained 3 percent to close at $59.89 on reports of renewed hostilities in Yemen, while gold gained a touch and the dollar was mixed.
Treasury bonds were again in focus as the 10-year yield moved up toward the 2.45 percent level not seen since October as traders increasingly price in a rebound in economic growth, higher inflation and the rising specter of Federal Reserve hiking rates as soon as September. The day's losses represented a breakdown for the iShares 20+ Year Treasury Bond Fund (TLT), which violated a support level going back to November.
Doubleline's Jeff Gundlach said in a presentation after Tuesday's close that the next critical threshold will be the 2.6 percent level for the 10-year bond and that the long-term bond market is pressuring the Fed to hike rates.
This all got support from the economic data as the government's Job Opening and Labor Turnover Survey (JOLTS) report showed job openings surged to a 15-year high in April. The result easily beat expectations and reinforced the belief that the job market is tightening quickly enough to justify a Fed rate liftoff this year.
The last piece of the labor market puzzle will be evidence of wage inflation, which we haven't seen yet. Deutsche Bank economists note further signs it's coming, however, based on measures such as employment costs, average hourly earnings and more.
After months in the doldrums, it seems like the bears are finally getting the upper hand as breadth measures roll over in response to the approach of the Fed's first policy rate increase since 2006. The job market strength will be hard for the policy doves to ignore. And the end of the experiment with zero percent interest rates is widely expected to result in financial market turbulence.
Caution is spreading. You can see this in the chart above of the percentage of S&P 500 stocks that are in uptrends, a proxy for how broad current buying interest in the stock market is.
Last summer's enthusiasm gave way to tepid interest in the months that followed -- save for the dramatic, Ebola-driven plunge back in October. This measure seemed to stabilize near 65 percent but has broken to the downside over the last two trading sessions as the S&P 500, shown in the lower pane, fell below its four-month uptrend support.
We'll know more when the Fed concludes its two-day policy meeting on June 17.