The stock market suffered a small decline on Friday following an employment report that left investors more uncertain than ever about the future course of U.S. interest rates. Nonfarm payrolls rose by just 38,000 in May, underperforming expectations substantially, and leading many to conclude that the Federal Reserve will not be inclined to raise short-term rates at its June meeting. Some now believe that a rate hike might not happen until September, and that sent ripples across several financial markets as the potential fallout spread.
Major market benchmarks finished with losses of as much as half a percent, but some stocks did far worse. Among those with the biggest losses were Smith & Wesson Holding (SWBI -0.62%), Globalstar (GSAT -0.58%), and Charles Schwab (SCHW -0.17%).
Smith & Wesson fell 7% after the latest data from the FBI's National Instant Criminal Background Check System showed a downturn in the background-check activity that precedes purchases of firearms or explosives. In total, the FBI reported 1.86 million background checks for the month of May, down from 2.14 million in April, and far below the 2.5 million to 2.6 million monthly numbers that it reported during the first quarter of 2016. The indicator of potential firearms sales isn't a perfect predictor of results for Smith & Wesson, but many investors have feared that the gunmaker wouldn't be able to count on demand staying as strong as it generally has in recent years.
Globalstar plunged 55% after news that the Federal Communications Commission is less likely to approve a plan to use its satellite spectrum assets to provide mobile broadband services. Reports surfaced that a second member of the five-person FCC had voted against the plan, joining another who had publicly disclosed opposition to the proposal previously.
Opponents of the proposal argue that letting Globalstar expand its service could create problems with mobile devices from rival companies, but Globalstar argues that the expansion could add to Wi-Fi availability nationwide. The final vote won't necessarily happen in public, but investors are increasingly expecting an adverse decision when the FCC takes action.
Finally, Charles Schwab fell 5%. The discount broker's shares likely lost ground as a result of the jobs report's impact on interest-rate expectations. Schwab and other brokers rely more heavily than most investors realize on the interest that they earn on customer cash balances, and the unprecedented period of low rates has destroyed a major source of revenue for Schwab in recent years.
Investors had expected that an imminent Fed rate hike would finally restore at least some of those lost profits. But if the central bank chooses to put off a rate increase even longer, then that could put Schwab shareholders back in a holding pattern, and further weigh on the broker's profitability for a bit longer.