Stocks Juggle Weakening Economy and Fed Rate Cut Hopes

The S&P 500 and Nasdaq edged up as investors bet on an earlier start to the Federal Reserve's easing cycle following reports of a weakening labor market. Megacap stocks like Nvidia and Amazon.com saw gains. Investors are balancing recession worries with hopes for a summer rally and upcoming Fed rate cuts.

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ISM non-manufacturing PMI stronger than forecast *

US private payrolls rise less than expected in May, ADP report shows *

CrowdStrike gains after strong Q2 forecast *

HPE climbs after upbeat revenue forecasts *

Indexes: Dow down 0.27%, S&P up 0.24%, Nasdaq up 0.73% (Updated at 10:05 a.m. ET/1405 GMT)

By Lisa Pauline Mattackal and Johann M Cherian June 5 (Reuters) -

The S&P 500 and the Nasdaq edged up on Wednesday as investors strengthened bets for an earlier-than-expected start to the Federal Reserve's easing cycle after multiple reports signaled a weakening labor market and slowing growth in the world's largest economy. Megacaps such as Nvidia, Microsoft and Amazon.com gained between 0.3% and 2.5%, while the Philadelphia SE Semiconductor Index added 2.2%.

Tech stocks gained 1.1%, leading sectoral advances. However, the majority of other S&P 500 sectors declined. U.S. Treasury yields initially slipped to two-month lows after the ADP National Employment report showed private employers increased their headcounts by 152,000 in April, significantly lower than forecast.

Traders now expect nearly 48 basis points of easing this year, according to the LSEG rate probabilities app. Expectations for a September rate reduction are now at nearly 69%, versus below 50% last week, according to the CME's FedWatch tool. Separately, an Institute of Supply Management survey showed

services sector activity stood at 53.8 in May, better than the expectation of 50.8.

With major indexes near all-time highs, investors are juggling worries of a weakening economy with hopes this would lead to an earlier start to the Fed's rate cuts than previously expected. "The odds of recession have increased just from the data that we've seen... the economy has tricked us and been more resilient than people expect, but at some point it's going to falter," said Thomas Martin, vice president and senior portfolio manager at Globalt Investments.

However, "there's a lot of desire to participate and to not miss out on a summer rally", he added. Investors now await the nonfarm payrolls report, due on Friday, for a comprehensive evaluation of the labor market.

At 10:05 a.m. ET, the Dow Jones Industrial Average was down 103.18 points, or 0.27%, at 38,608.11, the S&P 500 was up 12.94 points, or 0.24%, at 5,304.28, and the Nasdaq Composite was up 123.07 points, or 0.73%, at 16,980.11. Losses in economically sensitive consumer discretionary stocks were the biggest drags on the Dow.

Hewlett Packard Enterprise topped the benchmark index with a 13.8

% rise after forecasting third-quarter revenue above Street expectations

, helped by upbeat demand for its AI servers. Dollar Tree reversed earlier gains, slipping 2.2% after a disappointing quarterly profit forecast. The budget retailer said it would explore options that include a potential sale or spin-off of Family Dollar.

Intel gained 1.4% after buyout firm Apollo Global Management agreed to purchase a 49% equity interest for $11 billion, in a joint venture related to the chipmaker's Ireland manufacturing unit. CrowdStrike Holdings jumped 4.2% after forecasting second-quarter revenue above estimates when markets closed on Tuesday, helped by strong demand for its cybersecurity offerings.

Advancing issues outnumbered decliners by a 1.15-to-1 ratio on the NYSE, and by a 1.09-to-1 ratio on the Nasdaq. The S&P index recorded

11 new 52-week highs and six new lows, while the Nasdaq recorded

29 new highs and

57 new lows.