Page One
There was some slippage in the major indices on Thursday as some consolidation interest took over. Overall, the losses were modest relative to recent gains, although the Russell 2000 (-1.2%) stood out among the laggards.
What also stood out was the stock market's lackluster response to Bitcoin's trek above $100,000. It is natural to think that unprecedented move would invite some animal spirits to the party, but that didn't happen. Stocks languished and Bitcoin itself eventually relented to selling interest, stirring some angst that this price action could at least be signaling a peak in the post-election trade, if not a peak in both markets.
We should get a good sense today if the stock market decides a breather is in order. The November employment report has satisfied the market's December rate cut curiosity in the sense that it gives the Fed cover, absent what we may see in next week's CPI and PPI reports, to cut the target range for the fed funds rate by another 25 basis points at the December FOMC meeting.
There will be a debate as to whether the Fed should cut rates with core inflation still above the 2.0% target, the wealth effect in full force with home equity values soaring and the stock market (and Bitcoin) at record highs, and Q4 GDP tracking above 3.0%, according to the Atlanta Fed GDPNow model. We're only saying that a Fed sounding more like it wants to cut again in December can cherry pick from the latest report to rationalize a rate cut decision.
Where it will do the cherry picking is in the unemployment rate, which ticked up to 4.2% from 4.1%, the increase in the U6 unemployment rate (to 7.8% from 7.7%), which accounts for unemployed and underemployed workers, and the drop in the labor force participation rate to 62.5% from 62.6%.
The fed funds futures market sees that opening. The probability of a 25-basis points rate cut at the December FOMC meeting went from 70.2% in front of the report to 89.3% following the report, according to the CME FedWatch Tool.
The 2-yr note yield, in turn, went from 4.17% to 4.10%, and the 10-yr note yield went from 4.18% to 4.16%.
Notable headlines from the November Employment Situation Report:
- November nonfarm payrolls increased by 227,000 (Briefing.com consensus 200,000). The 3-month average for total nonfarm payrolls increased to 173,000 from 123,000. October nonfarm payrolls revised to 36,000 from 12,000. September nonfarm payrolls revised to 255,000 from 223,000.
- November private sector payrolls increased by 194,000 (Briefing.com consensus 200,000). October private sector payrolls revised to -2,000 from -28,000. September private sector payrolls revised to 222,000 from 192,000.
- November unemployment rate was 4.2% (Briefing.com consensus 4.2%), versus 4.1% in October. Persons unemployed for 27 weeks or more accounted for 23.2% of the unemployed versus 22.9% in October. The U6 unemployment rate, which accounts for unemployed and underemployed workers, increased to 7.8% from 7.7%.
- November average hourly earnings were up 0.4% (Briefing.com consensus 0.3%) versus 0.4% in October. Over the last 12 months, average hourly earnings have risen 4.0%, versus 4.0% for the 12 months ending in October.
- The average workweek in November was 34.3 hours (Briefing.com consensus 34.3), versus 34.2 hours in October. Manufacturing workweek was little changed at 40.0 hours. Factory overtime increased 0.1 hour to 2.9 hours.
- The labor force participation rate decreased to 62.5% from 62.6%.
- The employment-population ratio fell to 59.8% from 60.0%.
The employment report, and the response to it, has overshadowed the response to earnings results from lululemon athletica (LULU), Ulta Beauty (ULTA), and DocuSign (DOCU) to name a few. That is understandable given the macro connotations embedded in the report.
At the end of the day, though, the market's price action will be the focal point. With market rates sliding -- and rate cut expectations rising -- after the employment report, there is a basis for the indices to bounce back from yesterday's losses. Today, then, will be a test of the momentum trade that seemingly failed yesterday.
Currently, the S&P 500 futures are up six points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 33 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 72 points and are trading 0.2% above fair value.
