U.S. stocks on Friday made small moves while bonds sold-off, as conflicting data on the labor market and inflation led to market participants paring back their bets that the Federal Reserve would start cutting rates soon.
Wall Street’s major averages opened lower after November nonfarm payrolls came in higher than anticipated. There was an upward move shortly after the opening bell following consumer sentiment data, and the indexes have fluctuated since then.
The tech-heavy Nasdaq Composite (COMP.IND) was up 0.02% to 14,342.15 points in mid-day trade. The benchmark S&P 500 (SP500) was flat at 4,585.58 points, while the blue-chip Dow was little changed at 36,116.30 points.
Of the 11 S&P sectors, six were in the green, led by Energy. Real Estate was the top loser.
The S&P was on track to snap five straight weeks of gains, as markets have taken a bit of a breather this week following November’s astonishing rally. For the week, the S&P was down 0.20% and the Dow was down 0.36%. The Nasdaq was up 0.26%.
Before the start of regular trading, the closely-watched nonfarm payrolls report showed that the economy added 199K jobs last month, higher than the consensus figure of 180K and accelerating from the 150K reading in October. It should be noted that an increase in payrolls was expected as workers returned from the Hollywood writers and actors strike as well as the United Auto Workers walkout.
The report bucked a week-long trend of data that has shown the kind of gradual cooling in the labor market that the Fed wants to see. The report also led to investors taking a beat and assessing whether their expectations for rate cuts have been too optimistic.
After the opening bell, the slightly negative sentiment sparked by the jobs report was countered by the release of the University of Michigan’s consumer sentiment index, which came in at 69.4 for December, well above the estimated number of 62.0 and higher than the 61.3 figure in November. Moreover, year-ahead inflation expectations inched lower to 3.1% from 4.5%.
According to the CME FedWatch tool, the odds of a 25 basis point rate cut in March 2024 has now fallen to 43.8% from 55.41% the previous day. But the outcome of next week’s monetary policy committee meeting – the central bank’s last of this year – is still in little doubt, with the Fed widely anticipated to hold rates steady.
“Most of the job growth last month—142K of it—was driven by the two least cyclically-sensitive sectors of the economy: health care and government. Outside these two sectors (and even with the ~40K boost from returning strikers) job growth was 57K last month and has averaged only 40K per month over the last six months. Rate hikes have been effective at slowing private economic activity,” JPMorgan’s Michael Feroli said.
“And even with the tick up in pay gains last month, three-month average annualized earnings growth is running 3.4%, hardly a frightening inflation risk (particularly with this morning’s benign news on inflation expectations). With this backdrop, we don’t see today’s jobs report having a material impact on the substance or tone of what Powell and the FOMC deliver next week,” Feroli added.
Treasury yields were higher as traders dumped bonds. The longer-end 30-year yield (US30Y) was up 10 basis points to 4.34%, while the 10-year yield (US10Y) was up 13 basis points to 4.26%. The shorter-end more rate-sensitive 2-year yield (US2Y) was up 16 basis points to 4.74%.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
Turning to Friday’s market movers, Paramount Global (PARA) (PARAA) was the top percentage gainer on the S&P 500 (SP500) amid new speculation about a potential company sale.