By Noel Randewich and Amruta Khandekar
(Reuters) - U.S. stocks ended down on Wednesday, pulled lower by megacaps and energy shares as signs of a cooling jobs market reinforced expectations that the Federal Reserve could start cutting interest rates early next year.
The ADP National Employment report showed private payrolls increased by 103,000 jobs in November, below economists' expectation of 130,000. That provided fresh evidence of labor market weakness, a day after news of a drop in October job openings.
The latest employment data reinforced expectations the Fed's rate-hike campaign is cooling the economy.
"Right now, it's consistent with the overall trajectory of softening job growth, and so far that's not problematic because the economy is still humming along," said Bill Merz, head of capital markets research at U.S. Bank Wealth Management in Minneapolis.
"What would be concerning is if that trend persists for too long, and it turns into large job losses."
Declines in energy stocks weighed on the major indexes, with oil prices dropping 4% as a larger-than-expected rise in U.S. gasoline inventories exacerbated worries about fuel demand. [O/R]
Of the 11 S&P 500 sector indexes, eight declined, led by energy, down 1.64%, followed by a 0.93% loss in information technology.
Nvidia (NASDAQ:NVDA) fell 2.3%, while Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) each lost more than 1%.
While the S&P 500 ended lower, advancing issues in the index outnumbered decliners by a 1.3-to-one ratio.
On Friday, the more comprehensive non-farm payrolls report for November will offer greater clarity on the state of the labor market.
Investors widely expect the Fed to hold rates steady at its meeting next week and potentially start cutting rates in March.
A slim majority of economists in a Reuters poll said they believe the Fed will leave rates unchanged at least until July, later than earlier thought.
Optimism about rate cuts helped push the S&P 500 up nearly 9% in November, and the benchmark is now down about 9% below its record high close in December 2021.
The S&P 500 declined 0.39% to end at 4,549.34 points.
The Nasdaq Composite Index fell 0.58% to 14,146.71, while the Dow Jones Industrial Average slid 0.19% to 36,054.43.
Volume on U.S. exchanges was relatively heavy, with 11.3 billion shares traded, compared to an average of 10.7 billion shares over the previous 20 sessions.
Plug Power (NASDAQ:PLUG) fell 5.9% after Morgan Stanley downgraded the hydrogen fuel cell firm to "underweight" from "equal weight."
Tobacco giants Altria Group (NYSE:MO) and Philip Morris International (NYSE:PM) slipped 2.8% and 1.6%, respectively, after UK peer British American Tobacco (NYSE:BTI) said it will take a $31.5 billion hit from writing down the value of some U.S. cigarette brands.
Campbell Soup (NYSE:CPB) rallied 7.1% after the food seller beat quarterly profit expectations, helped by higher prices for its packaged meals and snacks.
The S&P 500 posted 29 new highs and no new lows; the Nasdaq recorded 99 new highs and 93 new lows.