Markets Close Mixed as Job Reports Shift Rate Expectations
The S&P 500 Index ($SPX) (SPY) closed on Friday up +0.25%, while the Dow Jones Industrials Index ($DOWI) (DIA) recorded a decline of -0.28%. The Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.92%.
Jobs Report Fuels Rate Cut Speculations
Friday’s market activity showed a mix of results, with the S&P 500 and Nasdaq 100 reaching new record highs. The U.S. November payroll report indicated stronger expectations for the Federal Reserve to reduce interest rates, boosting the likelihood of a -25 basis point cut later this month to 85% from 70%. November nonfarm payrolls increased by 227,000, surpassing the expected 220,000, while the unemployment rate unexpectedly rose by 0.1 percentage points to 4.2%. This mixed jobs data caused Treasury note yields to fall, as the yield on the 10-year Treasury note declined to a 1.5-month low.
Energy and Healthcare Stocks Struggle
On the downside, energy stocks faced challenges, with WTI crude oil prices dropping over -1% to a 2.5-week low. Additionally, shares in health insurance and managed healthcare sectors fell, pressuring the overall market.
Federal Reserve Maintains Hawkish Stance
Comments from Federal Reserve officials on Friday hinted at careful consideration regarding interest rate adjustments. Fed Governor Michelle Bowman suggested a cautious approach to rate cuts due to persistent inflation concerns. Meanwhile, Cleveland Fed President Hammack indicated that policymakers are “at or near” the point to slow down the rate of interest cuts, acknowledging a resilient economy.
Key Payrolls Data
The payroll report showed U.S. November nonfarm payrolls grew by +227,000, slightly ahead of forecasts of +220,000, while October figures were revised upward to +36,000 from +12,000. The increase in unemployment surprised analysts who anticipated no change at 4.1%.
Consumer Sentiment on the Rise
Average hourly earnings in the U.S. for November rose +0.4% month-over-month and +4.0% year-over-year, exceeding expectations of +0.3% and +3.9%, respectively. Additionally, the University of Michigan’s December consumer sentiment index climbed +2.2 to an 8-month high of 74.0, beating forecasts of 73.2.
Credit Growth Surpasses Expectations
In October, U.S. consumer credit rose by +$19.239 billion, significantly higher than the expected +$10.010 billion. Markets are now pricing in an 85% likelihood of a -25 basis point cut at the Federal Reserve’s meeting on December 17-18.
International Markets Show Mixed Results
Global markets closed mixed, with the Euro Stoxx 50 rising to a 5-week high, gaining +0.53%. China’s Shanghai Composite Index also climbed up by +1.05%, while Japan’s Nikkei Stock 225 fell by -0.77%.
Update on Interest Rates
March 10-year Treasuries (ZNH25) closed up +8 ticks on Friday, as the 10-year T-note yield dropped -2.9 basis points to 4.147%. T-note prices increased due to the mixed jobs report, even as stronger-than-expected earnings and rising consumer sentiment suggested a hawkish stance from the Federal Reserve. The stronger wage growth heightened concerns about inflation, resulting in Fed officials’ cautious comments impacting Treasury prices.
European Bond Market Activity
On Friday, yields on European government bonds decreased. The yield on the 10-year German bund fell from a one-week high of 2.130% to 2.108%, and the UK gilt yield dropped -0.6 basis points to 4.275%. German industrial production fell unexpectedly by -1.0% month-over-month, contrary to expectations of a +1.0% rise.
Equities on the Move
Lululemon Athletica (LULU) led the S&P 500 and Nasdaq 100 with a gain over +16%, buoyed by reporting Q3 net revenue of $2.40 billion against an expected $2.36 billion. The company also raised its 2025 revenue estimate to $10.45 billion-$10.49 billion, higher than the consensus.
Hewlett Packard Enterprise (HPE) saw a rise of more than +10% after reporting Q4 net revenue of $8.46 billion, exceeding estimates of $8.26 billion.
Other notable gainers included Ulta Beauty (ULTA), which closed up +9% after its Q3 EPS of $5.14 surpassed expectations of $4.54. Furthermore, DocuSign (DOCU) soared +27% after its Q3 subscription revenue hit $734.7 million, compared to estimates of $724.5 million.
Conversely, health insurance stocks faced setbacks. UnitedHealth Group (UNH) dropped over -5%, and CVS Health (CVS) and Elevance Health (ELV) fell more than -2%. Energy stocks also struggled, with Halliburton (HAL) and Diamondback Energy (FANG) declining over -4% and -3%, respectively.
Smith & Wesson Brands (SWBI) plunged -19% following a Q2 adjusted EPS report of 11 cents, falling short of the consensus of 17 cents.
Upcoming Earnings Reports
On December 9, 2024, stocks to watch will include Casey’s General Stores Inc (CASY), MongoDB Inc (MDB), Oracle Corp (ORCL), Toll Brothers Inc (TOL), and Vail Resorts Inc (MTN).
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
