After The Close
The stock market, which began the new week and month on a disquieting note, as a disappointing report on manufacturing activity, issued Monday, and emerging concerns about fashioning a timely trade agreement with China hit the Street on Tuesday caused Wall Street to suffer back-to-back sharp declines. However, the ship righted itself on Wednesday, even though a major issuance on non-manufacturing activity proved somewhat underwhelming. Yesterday then saw further slight improvement, in part on the report of a narrowing in our trade deficit during October. But all of this was just a prelude to the fireworks today.
On point, the latest session proved to be a stunner, as news of a much stronger-than-forecast increase in non-farm payrolls in November really unleashed the bulls. In response, the Street would fashion a wire-to-wire win for those who were long the market. Specifically, the Labor Department reported that the nation added 266,000 jobs last month, helped by the return of thousands of striking auto workers. Expectations had been for en employment increase of 187,000. Also, job totals for September and October were revised upward; the unemployment rate matched a 50-year low of 3.5%; and wages ticked nicely higher.
So, the bulls really pressed ahead, with the buying beginning at the outset and never letting up as the morning ended and the afternoon began. In all, as we hit the halfway mark of the session, the Dow Jones Industrial Average was up 340 points; the S&P 500 Index was better by 32 points; and the NASDAQ was rising 88 points. Gainers, moreover, were all around and there were few pockets of weakness afoot. This up move followed an unsettling few sessions and came ahead of next week's FOMC meeting, at which time the Federal Reserve seems unlikely to adjust interest rates.
As to sectors, the basic materials stocks were doing well, as was the heretofore beleaguered energy group. The technology stocks likewise pressed ahead. Also on the rise were Treasury note yields, as there was a move away from more conservative or so-called safer assets. In all, the 10-year Treasury note's yield had climbed to 1.84% at midday, a notable gain. This strong end to the week came amidst conflicting signals on the trade front with China, as the deadline for increased tariffs drew near. Our sense continues to be that a limited trade arrangement will be struck shortly, perhaps by yearend, or shortly thereafter.
Meanwhile, the buying persisted into the close, with only brief bouts of profit taking along the way, as the strong jobs data raised hopes that earnings would gather steam and that we would get a buoyant holiday shopping season. All told, the Dow would end the day ahead by more than 300 points. Appreciable gains also were logged by the S&P 500 Index and the NASDAQ. Looking ahead to next week, we will get data on consumer prices on Wednesday, producer prices on Thursday, and retail sales on Friday. But the headline event, besides the latest news on the trade front, will be the FOMC statement issued late Wednesday. Stay tuned.
– Harvey S. Katz, CFA
At the time of this article's writing the author did not have positions in any of the companies mentioned.
11:00 AM EST
Stocks would then continue to ease over the balance of the morning, with the Dow Jones Industrial Average descending to a session-worst decline of 88 points early in the session. The other indexes gave ground as well. Investors also were more than a little worried about the Labor Department's monthly report in non-farm payrolls, which was released just moments ago. Expectations there had been for a jobs increase of 187,000 in November. That October tally had been 128,000 new positions. The actual payroll rise last month was 266,000.
Meanwhile, the market started to improve as the afternoon began on some apparent optimism that a phase one trade agreement can be reached shortly. The United States and China have until December 15th to reach a partial accord or additional tariffs will kick in. Our guessing is that the two sides will meet that deadline or agree to a short extension. The ability of an overbought and pricey equity market to rebound from early month losses suggests that this cautious optimism is shared. As to the market, the afternoon rebound continued into the close, with the indexes scoring modest gains, led by the Dow's 28-point advance.
Regarding the employment situation, the nation, as noted, added a blockbuster 266,000 jobs last month while the unemployment rate eased to 3.5%, one-tenth of a point below the forecast. Looking into the issuance, we see that the labor-force participation rate was 63.2%, which was little changed and average hourly earnings increased by a solid $0.07. Also, the non-farm payroll increases for September and October were revised upward from 180,000 to 193,000 and from 128,000 to 156,000, respectively. Taking the various components into account, this was a much stronger than expected report and the futures moved up notably ahead of the opening bell, and stocks got off to a healthy start when the trading day commenced.
