Wall Street's benchmark S&P 500 (SP500) gauge on Wednesday closed at a new record high, after fresh economic data supported a scenario where the Federal Reserve would be able to start easing monetary policy.
Traders saw a truncated session ahead of the Independence Day holiday, with equity and bond markets closing at 1300 ET and 1400 ET, respectively.
The S&P (SP500) added 0.50% to end at 5,536.83 points, while the tech-heavy Nasdaq Composite (COMP:IND) took out the 18,100 points level for the first time ever, climbing 0.88% to settle at 18,188.30.
The Dow (DJI) bucked the trend, slipping 0.06% to conclude at 39,308.00 points. The blue-chip average was weighed down by losses in its healthcare components.
Of the 11 S&P sectors, seven ended in the green.
"We truly live in crazy times. Ignoring all the things going on domestically in the political arena, internationally when it comes to geopolitical concerns, environmentally, and more, markets are most certainly crazy on their own ... This optimism from the market can be attributed to signs of weakening for the U.S. economy," Daniel Jones, investing group leader of Crude Value Insights, told Seeking Alpha.
The economic calendar was chock-full of indicators, but three in particular caught the eye. Before the opening bell, the ADP Research Institute said job creation among private employers slowed for the third straight month, with 150K added in June compared to 157K in May. Economists had been expecting a rise of 163K.
Shortly after the ADP report, the U.S. Department of Labor said the number of Americans filing for initial jobless claims in the past week rose to 238K. But more notably, claims for insured employment climbed for a ninth straight week and continued to hover near its highest level since November 2021.
Insured unemployment, also known as continuing claims, is the number of people who have already filed for an initial jobless benefit and have then filed another claim to continue getting benefits for another week.
The highly resilient labor market and its low rate of unemployment has been - along with inflation - some of the primary reasons for the Fed holding interest rates steady at a 23-year high and not gaining enough confidence yet to ease monetary policy. However, today's data points to signs of cracking in that space.
The third attention-grabbing economic indicator of the day was provided by the Institute for Supply Management (ISM). According to ISM, the U.S. services sector contracted in June to 48.8%, the lowest level in over four years and a sure sign that the economy was cooling - something the Fed wants to see before it can cut rates.
"Considering that the U.S. economy gets about 78% of all GDP from services, this suggests that we are finally seeing some pain stemming from the interest rate hikes that the Federal Reserve has implemented in recent years ... with this weakening comes the hope that interest rates could ultimately be cut sooner and more aggressively than otherwise anticipated. And if this were to occur, long-term growth prospects could be more appealing," Crude Value Insights' Jones added.
The minutes of the Fed's June meeting will be released later in the day.
Turning to the fixed-income markets, U.S. Treasury yields retreated as market participants snapped up bonds after the bevy of economic data. The longer-end 30-year yield (US30Y) was down 8 basis points to 4.52%, while the 10-year yield (US10Y) was down 7 basis points to 4.35%. The shorter-end, more rate-sensitive 2-year yield (US2Y) was down 4 basis points to 4.71%.
See how Treasury yields have done across the curve at the Seeking Alpha bond page.
Looking at Wednesday's active stocks, Paramount (PARA)(PARAA) ended as the top percentage gainer on the S&P 500 (SP500), after a CNBC report said that a deal to merger the iconic film studio with Skydance Media was back on.