Investors Await Rate Decision and Fed Comments, Private Sector Job Gains Accelerate

Barry Adams
03 May, 2023
New York City

Stocks drifted lower in early trading as investors await Fed's rate decision and commentary in the afternoon. 

Most investors are anticipating the Federal Reserve to increase its key lending rate range higher by 25 basis points and traders are awaiting deeper insights about the rate trajectory. 

Will the Fed pause after the presumed rate hike today or will central bank continue its rate hike campaign?

The intense debate has rattled the stock and bond markets for weeks with no clear direction for the rate path going forward. 

Moreover, investors are becoming more concerned about the lack of progress in lifting the federal government debt ceiling with the government expected to run out of money as early as early June. 

With both political parties showing no urgency to settle their difference, the federal government may be heading for closure as early as in five week.  

Regional banking crisis has gripped much of the market sentiment for the last month and regional banks declined in today's trading on the worries that higher rates will only deepen the crisis and may spread to commercial real estate. 

 

Private Sector Job Gains Accelerated In April 

Private sector hiring accelerated in April, contrary to the expectations of a cooler job market, payroll processing firm ADP reported Wednesday. 

Payrolls expanded 296,000 in April from the downwardly revised 142,000 in March, reflecting the strongest monthly gain since July 2022. 

Annual pay increase slowed to 6.7% from a year ago, slower than the increase above 7% for months. 

"Employers are hiring aggressively while holding pay gains in check as workers come off the sidelines", said Nela Richardson, chief economist, ADP.

Job gains were evenly distributed among employers of all sizes and a total of 243,000 were added by businesses employing less than 500. 

The services sector added 229,000 jobs led by an increase in leisure and hospitality industries by 154,000, education and health services by 69,000, trade, transportation and utilities by 32,000, and information industry by 2,000. 

On the other hand the goods-producing industry added 67,000 jobs driven by gains in the construction industry of 53,000 and mining industry of 52,000 but the manufacturing industry trimmed 38,000 jobs.

 

U.S. Indexes & Yields 

The S&P 500 index rose  0.1% to 4,126.16 and the Nasdaq Composite increased 0.1% to 12,102.25. 

The yield on 2-year Treasury notes declined to 3.97%, 10-year Treasury notes edged down to 3.40% and 30-year Treasury bonds held at 3.69%. 

Crude oil fell $2.0 to $69.77 a barrel and natural gas prices fell2 cents to $2.18 a thermal unit. 

 

U.S. Stock Movers 

Advanced Micro Devices Inc fell 7.2% to $83.50 and the semiconductor company forecasted demand weakness to persist in the second quarter. 

Revenue in the first quarter declined 9% to $5.4 billion from $5.9 billion and gross margin fell to 44% from 48% a year ago. 

The company swung to a net loss of $139 million from $786 million and diluted earnings per share fell to ($0.09) from 56 cents a year ago. 

For the second quarter of 2023, AMD expects revenue to be approximately $5.3 billion, plus or minus  $300 million and non-GAAP gross margin to be approximately 50%.  

Client group, which includes PC makers, sales plunged 65% to $739 million from $2.1 billion. Data center sales inched slightly higher to $1.295 billion from $1.293 and the company hinted for higher sales in the second half. 

Gaming segment sales, which includes sales to console makers and graphics chips, edged lower to $1.8 billion from $1.9 billion and embedded segment, which includes networking chips, sales jumped to $1.5 billion from $595 million a year ago.  

Starbucks Corp declined 4.2% $109.66 after the coffee chain operator reiterated its annual earnings outlook and comparable store sales in China rebounded following the ending of zero-Covid policy. 

Revenue in the first quarter rose 14% to $8.7 billion from $7.6 billion after sales picked up in China following the end of zero-Covid policy. 

Net earnings attributable to shareholders increased to $908.3 million from $674.5 million and diluted earnings per share to 79 cents from 58 cents a year ago. 

Expeditors International of Washington Inc was nearly unchanged at $113.24 after the company estimated weak demand conditions for ocean and air cargo freights to persist in the current quarter.  

Revenue in the first quarter plunged 44% to $2.6 billion following the steep drop in rates and volumes. 

Net income dropped 35% to $226.01 million from $346.1 million and diluted earnings per share fell to $1.45 from $2.05 a year ago. 

In the quarter, the company repurchased 2.0 million shares at an average price of $108.98 a share.