After The Close
The major U.S. stock indexes took it on the chin today, closing out the worst week for equities in over two years.
On the economic front, today’s news was largely favorable. The U.S. added 200,000 jobs last month, with the biggest increases coming from the education and health services, construction, and leisure and hospitality sectors. The unemployment rate remained at 4.1%. Meanwhile, hourly wages increased by 0.3%, lifting the 12-month figure to 2.9%, marking the largest growth in well over half a decade. However, this appears to have been another one of those cases where good news for the economy is bad news for the markets, as the strong employment numbers raised fears that the Federal Reserve would be more liberal with its interest rate increases. And, indeed, it appeared that the selloff gathered more steam after Dallas Fed President Robert Kaplan indicated that the lead bank may have to do more than three rate hikes this year.
At the closing bell, the 30-stock Dow Jones Industrial Average was down 666 points, or 2.5%, the broader S&P 500 was off by 60 (2.1%), and the NASDAQ shed 145 points (2.0%). The carnage was widespread, with declining issues outnumbering advancers by nearly 10-to-one on the Big Board. All of the 10 major market sectors were well into in the red, with the heaviest losses coming from energy stocks, which fell 3.4% in response to lower oil prices. Basic materials and technology issues also took big hits, falling 2.6% and 2.4%, respectively. On the other side of the ledger, utilities fared the best of the lot, shedding about three-quarters of a percentage point.
Traders also took a beating on the European bourses, marking a fifth-consecutive down day. Germany’s DAX and France’s CAC-40 both slid 1.8% into the red, while Britain’s FTSE managed to limit losses to a little over half a percent.
— Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:00 PM EST
Blame it on interest rates--specifically the 10-year Treasury note. To wit, following today's release of the stronger-than-expected increase in non-farm payrolls in January (200,000 jobs were created versus an expectation of 175,000 positions) rates spiked upward today, with the aforementioned Treasury note climbing to a multi-year high of 2.85%. Such a level is likely starting to be competition for stocks, which are yielding a tad less than 2%, on average. Not surprisingly, stocks have tumbled today.
Of course, it was not just the payroll increase that spooked the bulls, but also the nine-cent jump in average hourly earnings. That gain in January followed an 11-cent hike in wages the month before. In all, wages are ahead 2.9% over the past 12 months, which is starting to cause some inflation stir. The Federal Reserve is acknowledging as much.
So, stocks are selling off for the third time this week. In all, as we near the noon hour in New York, the Dow Jones Industrial Average, under pressure all morning, is off by more than 340 points. Losses are spread across the board, not surprisingly, with nine of the top 10 equity categories in the red, led down the losing path by energy, basic materials, and technology. Losing issues on the Big Board, meantime, are overwhelming winning stocks by some six to one.
So, we likely are looking at a difficult session for the bulls into the afternoon, with higher interest rates, the fear of escalating price inflation, and a more hawkish Fed taking a toll on the recently triumphant bulls. It should be noted that even with the Dow's setback, that index remains perched just below 26,000. And today's setback is just 1.3% to this point.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Following a near-meltdown by the stock market on Monday and Tuesday of this week, and an irregular and rather limited comeback attempt on Wednesday, Wall Street began the latest session in a downward fashion once more. On point, after a suggested early selloff in the pre-market hours, live trading opened on a materially weaker note at 9:30 AM (EST). All told, the Dow Jones Industrial Average fell back 135 points at the open on fears about rising inflation and higher interest rates. This one-two punch was especially felt following the latest Federal Reserve FOMC meeting.
True, at the conclusion of that two-day gathering, the central bank voted unanimously to leave interest rates unchanged. However, it also indicated that it saw inflation on the rise after years of below-trend price growth. And that affirmation led many to suggest that the Fed would opt to raise borrowing costs at its next FOMC meeting, scheduled for March 20-21. In all, we look for three to four rate hikes this year. Meantime, after this initial selloff, the market steadied and started a comeback, with the Dow even going positive for a time, before some choppiness resumed.
All told, as we reached the first hour of trading, the equity market had a mixed look to it, with all of the major indexes around the breakeven line. Bond yields, meantime, were relatively flat, which lifted sentiment modestly. In other news, the Institute for Supply Management reported yesterday morning that its purchasing manager’s index had registered a strong 59.1% reading for January. That tally was in line with the December figure (59.3%) and better than forecast. A big jump in prices aided the solid performance, which also benefited from continuing strength in new orders and production.
Of course, this report and surveys on January car sales and several other business indicators were mere preludes for this morning's release for the U.S. Labor Department on non-farm payrolls and the unemployment rate (more below). This report can be a market mover, and it likely will be today, with worries about inflation and interest rates beginning to surface, there was some jitteriness ahead of the release. As to the market, the major averages continued to move in and out of the red as we headed toward the lunch hour in New York. It seemed as though the market had been in a watchful waiting mood throughout the early hours of the trading day.
Then, as we moved into the afternoon, the stock market firmed up notably, with the Dow moving up to more than a 150-point gain at one point. However, with yield on the 10-year Treasury note climbing to 2.77%, that comeback was relatively brief, with the key averages then giving back all of their mid-session rise. By late afternoon, though, the indexes were mixed, as the Street awaited the aforementioned jobs report. At the close, the major indexes were all, fairly near the breakeven line, with the Dow ending matters higher by 37 points, but the NASDAQ was down by 26 points. The S&P 500, meantime, was lower, but the S&P Mid-Cap 400 was up.
Looking ahead to a new day now, and one that will be dominated by the just-released jobs report, we see that stocks were mixed in Asia overnight, while in Europe, the bourses are trading notably lower, especially in France and Germany, at this hour. Also, oil, up yesterday, is again ticking higher this morning, while Treasury note yields, which ended at that 2.77% level yesterday are at 2.82% now, following the jobs release, which was stronger than forecast. As to that issuance, the government just reported that non-farm payrolls surged by 200,000 in January. That was above the 180,000 forecast, with solid employment gains coming in construction, food services, restaurants, health care and manufacturing.
Moreover, the unemployment rate, secured in a separate survey, stayed unchanged at 4.1% last month. Furthermore, the labor-force participation rate remained at 62.7% for the fourth consecutive month. In a more worrisome development, as far as inflation is concerned, average hourly wages rose by nine cents in January, following an 11-cent gain in December. For the past year, earnings are up by $0.75, or 2.9%. That is a somewhat inflationary result. Not surprisingly, Treasury yields are, as noted, climbing, and U.S. equity futures are tumbling on those inflation concerns, with the Dow futures now suggesting an opening drop of 175 points. At its nadir, the Dow futures had signaled about a 260-point initial fall.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
