Before The Bell
Stock futures are pointing to a moderately higher open at the end of a volatile week, despite a disappointing Labor Department report on November nonfarm payrolls. A slimmer-than-expected 210,000 jobs were added, less than half of the expected 550,000. The good news is that the unemployment rate dropped to 4.2% from 4.6%.
Meanwhile, Wall Street enjoyed an impressive bounce back on Thursday after heavy selling in the previous session. The Dow Jones Industrial Average soared 618 points, the S&P 500 jumped 64 points, and the NASDAQ climbed 127 points.
Shares of small-capitalization companies fared especially well, with the Russell 2000 Index advancing a hefty 2.7%. All of the stock market’s major sectors registered gains.
Clearly, bargain hunters have stepped up to the plate, with the limited number of cases of the Omicron variant thus far confirmed in the United States leading investors to believe that Wednesday’s selloff was an overreaction.
Elsewhere, the Labor Department reported that initial unemployment claims for the week ending November 27th remained low, at 222,000.
Meanwhile, in Washington, a bipartisan group of lawmakers in the House of Representatives passed a measure that would fund the government through mid-February. The bill has now cleared the Senate and awaits signing by the President. Its passage eliminates fears of an imminent government shutdown.
Still, there are lingering uncertainties. The trend toward higher inflation has the Federal Reserve looking at potentially accelerating plans to reduce its monthly asset purchases, as the economy no longer needs as much stimulation as it did during the early days of the pandemic, when the buying program began.
In turn, interest rates could rise sooner than previously expected if inflation is still a problem in early- to mid-2022. Stocks often have a tougher time during periods of rising interest rates.
Moreover, the threat of the Omicron variant, while not drastic so far, has led to the renewal of precautionary measures (vaccine mandates, quarantines), albeit to a limited extent, which could prolong the supply-chain snarls contributing to shortages of goods around the globe.
Through it all, with no recession in sight, the bull market remains intact, supported by sizable cash on the sidelines that is being put to use whenever pricing levels are more attractive. In addition, consumer demand—a key factor supporting economic growth—is proving strong and durable.
But the uncertainties of the Omicron variant (of which a handful of cases have now been reported in New York City) and shifting Federal Reserve policy could cause the volatility in stocks to linger a while longer.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
