The stock market was overbought on a short-term basis entering the week and then it was suddenly oversold on a short-term basis. To wit, at yesterday's low, the S&P 500 had dropped 5.0% in less than three full sessions of trading. It was making people nervous, which meant it was also making things ripe for a rebound effort -- and that's what happened.
Thursday closed on an upbeat note, with the late rally helped ostensibly by a Wall Street Journal report suggesting the Federal Reserve might be more cautious-minded about raising interest rates following its December FOMC meeting.
That view has been largely accounted for already in the fed funds futures market, so it shouldn't have been interpreted as a major surprise. Nevertheless, it was just the type of headline to whet the appetite of traders seeking some opportunities in an oversold market.
Strikingly, the futures for the major indices quickly went back on the defensive in overnight trading despite an impressive earnings report and upbeat guidance from Broadcom (AVGO). At one point, the S&P 500 futures were down 20 points and trading 1.0% below fair value.
Now, however, they are up one point and are trading just 0.2% below fair value. The Nasdaq 100 futures are down 10 points and are trading 0.4% below fair value. The Dow Jones Industrial Average futures are up 18 points and are trading 0.1% below fair value.
The impetus for the turn will be attributed in part to a timely tweet from President Trump who said China talks are "going very well." The better explanation, though, lays in the November employment report, which had that Goldilocks feel to it again.
Nonfarm payroll growth was a little light of expectations, but key for the market was the recognition that average hourly earnings were up 0.2% month-over-month. The latter resulted in a year-over-year increase of 3.1%, which was unchanged for the 12-month period ending in October.
The key takeaway from the report is that the wage acceleration the Federal Reserve has been bracing for was missing. That won't likely keep the Federal Reserve from raising the target range for the fed funds rate at its December FOMC meeting, yet it's the type of data point that could lead the Federal Reserve to be more cautious-minded about raising rates after that.
The notable headlines from the Employment Situation Report are as follows:
- November nonfarm payrolls increased by 155,000 (Briefing.com consensus 189,000). Over the past three months, job gains have averaged 170,000 per month
- October nonfarm payrolls revised to 237,000 from 250,000
- September nonfarm payrolls revised to 119,000 from 118,000
- November private sector payrolls increased by 161,000 (Briefing.com consensus 185,000)
- October private sector payrolls revised to 251,000 from 246,000
- September private sector payrolls revised to 117,000 from 121,000
- November unemployment rate was 3.7% (Briefing.com consensus 3.7%) versus 3.7% in October
- Persons unemployed for 27 weeks or more accounted for 20.8% of the unemployed versus 22.5% in October
- The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.6% versus 7.4% in October
- November average hourly earnings were up 0.2% (Briefing.com consensus +0.3%), after increasing 0.2% in October
- Over the last 12 months, average hourly earnings have risen 3.1%, unchanged from the 12 months ending in October
- The average workweek in September was 34.4 hours (Briefing.com consensus 34.5) versus 34.5 hours in October
- November manufacturing workweek unchanged at 40.8 hours
- Factory overtime unchanged at 3.5 hours
- The labor force participation rate was 62.9% in November versus 62.9% in October
In other developments, there are reports that OPEC and certain non-OPEC producers are coming around to the idea of a 1.2 million barrel per day production cut. We haven't seen an official communique, yet oil prices ($53.75, +$2.30, +4.5%) seem to like the essence of the report.
The bump in oil prices could give the energy sector a much-needed lift.