S&P, Nasdaq fall as weak private payrolls data fuels recession fears

April 5 (Reuters) – The S&P 500 and Nasdaq fell on Wednesday as weaker-than-expected private payrolls data for March raised concerns that the Federal Reserve’s rapid rate hikes could tip the U.S. economy into recession.

The ADP National Employment report showed U.S. private employment increased by 145,000 jobs last month, compared with economists’ estimates of a 200,000 increase, adding to recent signs of a cooling economy.

With concerns growing about a worsening economic outlook following the latest turmoil in the banking sector, market expectations have shifted in favor of the US Federal Reserve hitting the brakes on interest rate hikes.

Traders’ bets on a May Fed pause shot up to 60.8%, while odds of a 25-basis-point rate hike fell to 39.2%, according to CME Group’s Fedwatch tool.

Major technology and growth stocks such as Meta Platforms Inc ( META.O ), Tesla Inc ( TSLA.O ) and Amazon.com Inc ( AMZN.O ) fell between 0.3% and 1.4% in early trade.

Nvidia Corp ( NVDA.O ) was among the biggest moves on the S&P 500, down 2.2%, after Alphabet Inc’s ( GOOGL.O ) Google said the supercomputers it uses to train its artificial intelligence models were faster and more power-efficient than comparable systems from the chip manufacturer.

Defensive stocks such as health care (.SPXHC), utilities (.SPLRCU) and consumer staples (.SPLRCS) were in the green among major S&P 500 sectors.

Keeping the Dow Jones afloat was a 3.2% gain in Johnson & Johnson ( JNJ.N ) after the company’s $8.9 billion offer to settle talc-related lawsuits won support from thousands of claimants, easing the plan’s overhang on listing the consumer health unit on the stock exchange. Kenvue.

All eyes are now on the non-farm payrolls data for March, a more comprehensive employment report, due on Friday for further clues about the state of the labor market.

“The Street realizes that with slower ADP payrolls … and the possibility that we get an underbid in Friday’s payrolls, the economy is really slowing down and the Fed just needs to make one more rate hike, if any,” said Sam Stovall, investment strategist for CFRA Research in New York.

“But at the same time, I think investors are watching closely to make sure we don’t end up in a deep recession.”

A report on non-manufacturing activity in March from the Department of Supply Management is expected later on Wednesday.

At 9:38 a.m. ET, the Dow Jones Industrial Average (.DJI) was up 57.17 points, or 0.17%, at 33,459.55, the S&P 500 (.SPX) was down 6.16 points, or 0.15% , to 4,094.44, and the Nasdaq. The Composite (.IXIC) was down 61.98 points, or 0.51%, at 12,064.35.

Both the benchmark S&P 500 and technology-heavy Nasdaq (.IXIC) are now on track for their first weekly declines of four in the holiday-shortened week.

FedEx Corp ( FDX.N ) rose 3.6% as the shipping company said it will merge its operating divisions into one organization as it steps up efforts to cut costs and increase efficiency.

Declining issues outnumbered advances by a 2.10-to-1 ratio on the NYSE and a 2.02-to-1 ratio on the Nasdaq.

The S&P index recorded four new 52-week highs and one new low, while the Nasdaq recorded 17 new highs and 85 new lows.

Reporting by Ankika Biswas and Amruta Khandekar in Bengaluru; Editing by Nivedita Bhattacharjee and Shounak Dasgupta

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