What you need to know…
The S&P 500 Index ($SPX) (SPY) today is up +0.93%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.65%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.79%.
Stocks today extended the sharp rally that began after Wednesday’s FOMC meeting, when the Nasdaq 100 index closed up +1.77% on Wednesday and up +1.74% on Thursday. Stocks rallied sharply beginning on Wednesday after Fed Chair Powell’s post-meeting comments prompted the markets to speculate that the Fed’s rate-hike regime is over.
Today’s U.S. unemployment report then provided a piece of economic data to support the theme that the U.S. economy is in the process of slowing and that another Fed rate hike might not be necessary.
Today’s unemployment report prompted the 10-year T-note to fall by another -11 bp to a 1-1/4 month low of 4.55%, adding to the combined -28 bp plunge seen on Wednesday and Thursday. The 10-year T-note yield has now plunged by nearly one-half percentage point from 16-year high of 5.02% posted on October 23. The 2-year T-note yield today is down -10 bp at a 2-month low of 4.89%.
Today’s U.S. unemployment report showed a weaker-than-expected labor market. Oct U.S. payrolls rose by +150,000, weaker than expectations of +180,000. Also, Sep payrolls were revised lower to +297,000 from +336,000.
Meanwhile, the Oct U.S. unemployment rate rose by +0.1 points to a 1-3/4 year high of 3.9%, which showed a slightly weaker labor market than expectations for an unchanged rate of 3.8%. On the positive side for inflation, Oct average hourly earnings rose +0.2% m/m, which was slightly weaker than expectations of +0.3%, although the Oct year-on-year figure of +4.1% m/m was slightly stronger than expectations of +4.0%.
Today’s Oct ISM services index fell by -1.8 points to 51.8, weaker than expectations for a -0.6 point decline to 53.0. Meanwhile, the final-Oct S&P U.S. Services PMI was revised lower by -0.3 points to 50.6, which was weaker than expectations for an unrevised report. The PMI reports indicated some slowing of growth in the U.S. service sector.
The markets are discounting a 10% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and an 8% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then expecting the FOMC to begin cutting rates by mid-2024 in response to an expected slowdown in the U.S. economy.
Stocks have underlying support from the generally favorable Q3 earnings season. Of the S&P 500 companies reporting thus far, 82% have beaten the consensus, better than the year-earlier figure of 72%.
The Sep Eurozone unemployment rate rose by +0.1 point to 6.5%, which showed a slightly weaker labor market than expectations for an unchanged unemployment rate of 6.4%.
The German trade report showed economic weakness, with Sep exports falling -2.4% m/m and imports falling -1.7% m/m, weaker than expectations of -2.0% and -0.1%, respectively. The Sep trade surplus of 16.5 billion euros was slightly larger than expectations of 16.3 billion euros, but was down from Aug’s revised 17.7 billion euros.
French Sep industrial production fell -0.5% m/m and -0.1% y/y, weaker than expectations of unchanged for both figures. Sep manufacturing production fell -0.4% m/m and -0.9% y/y, weaker than expectations of +0.1% m/m.
Overseas stock markets are higher. The Euro Stoxx 50 is up +0.38%. China’s Shanghai Composite Index today closed up +0.71%. Japan’s stock market today was closed for the Culture Day national holiday.
Today’s stock movers…
Apple (AAPL) is down -1.7% after the company, in its earnings report late Thursday, reported weaker than expected revenue from China and management downplayed expectations for holiday sales.
Bill Holdings (BILL) plunged -31% on disappointing management guidance on revenue and full-year earnings projections.
Block (SQ) is sharply higher by +12% on a Q3 earnings beat and a hike in its full-year guidance.
Coinbase (COIN) is down -0.2% as disappointment about reduced Q3 trading volume outweighed a revenue beat.
Expedia (EXPE) is up +17% after a Q3 earnings beat and the announcement of a $5 billion stock buyback program.
Nio (NIO) is up +3.6% after saying it plans to cut jobs and might spin off non-core divisions to cut costs and boost margins.
Across the markets…
December 10-year T-notes (ZNZ23) are up +1-02/32 points, and the 10-year T-note yield is down -11 bp at 4.55%. Dec T-notes climbed to a 1-1/2 month high today, and the 10-year T-note yield dropped to a 1-1/4 month low. T-note prices soared after today’s U.S. unemployment report supported this week’s theme that the Fed’s rate-hike regime is likely over. This week’s bullish tone should make it easier for the markets next week to absorb next week’s $112 billion Treasury quarterly refunding operation, with the sale of $48 billion of 3-year T-notes on Tuesday, $40 billion of 10-year T-notes on Wednesday, and $24 billion of 30-year T-bonds on Thursday.
The dollar index (DXY00) today is down -0.70%, adding to Thursday’s decline of -0.71%. The dollar has plunged on ideas that the Fed’s rate-hike regime is over and that the Fed may be cutting interest rates by mid-2024. EUR/USD (^EURUSD) today is up +0.71%. USD/JPY (^USDJPY) today is down -0.53%.
December gold (GCZ3) today is up +4.6 (+0.23%), and Dec silver (SIZ23) is up +0.414 (+1.81%). Precious metals prices received a boost from today’s U.S. unemployment report, which was dovish for Fed policy.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
