Stock Market Update

[BRIEFING.COM] Today's trading was a tough slog. The major indices held to tight trading ranges, unable to achieve escape velocity in either direction as both buyers and sellers lacked conviction following today's open. Still, there was enough interest in the mega-cap stocks and enough relief surrounding the November employment report to keep the stock market in relatively good form.

There was an initial burst of buying interest when the opening bell rang, aided by a drop in market rates that was a reaction to an employment report that was neither too strong nor too weak. In that regard, it engendered a belief that the economy will continue on a soft landing/no landing track and that the Fed will agree to another 25-basis points rate cut in the target range for the fed funds rate to 4.25-4.50% at the December FOMC meeting.

The fed funds futures market corroborated that belief. The probability of another 25-basis points rate cut went from 70.2% ahead of the employment report to north of 90.0% following its release. The probability stood at 85.1% as of this writing, according to the CME FedWatch Tool.

The 2-yr note yield settled the day down five basis points at 4.10% and the 10-yr note yield dropped three basis points to 4.15%.

Market participants took some solace in the rate-cut outlook, yet they didn't take full advantage of it, largely because so much good news has been priced into the market already that it is contending with valuation concerns and allegations that it is overbought on a short-term basis and due for a pullback.

Be that as it may, there hasn't been any rush to use options to hedge portfolios against downside risk. The CBOE Volatility Index, which closed at 20.49 on Election Day, fell below 13.00 today (12.72, -0.82, -6.1%) to its lowest level since mid-July or just before the S&P 500 suffered a near 10% pullback.

Leadership from the mega-cap stocks, a positive showing from the small-cap stocks, and growth stock enthusiasm following the earnings results and guidance from the likes of lululemon athletica (LULU 399.60, +54.79, +15.9%), DocuSign (DOCU 106.99, +23.31, +27.9%), and Ulta Beauty (ULTA 428.17, +35.30, +9.0%), made the difference for the broader market. The market cap-weighted S&P 500 and the Nasdaq Composite, which closed roughly at its high for the session, finished yet again with new record highs.

The consumer discretionary sector (+2.4%), taking its lead from LULU and ULTA, easily outpaced every other sector today. The next best performer was communication services (+1.4%) followed by information technology (+0.1%). All three of these sectors house mega-cap components. The Vanguard Mega-Cap Growth ETF (MGK) jumped 0.7%.

Market breadth figures and a 0.1% decline for the equal-weighted S&P 500 told the tale of an otherwise mixed market. Decliners led advancers by a 5-to-4 margin at the NYSE while advancers led decliners by a 13-to-8 margin at the Nasdaq.

• Nasdaq Composite: +32.3% YTD 
• S&P 500: +27.7% YTD
• S&P Midcap 400: +19.8% YTD
• Russell 2000: +18.9% YTD
• Dow Jones Industrial Average: +18.5% YTD

Reviewing today's economic data:

• November nonfarm payrolls increased by 227,000 (Briefing.com consensus 200,000). November private sector payrolls increased by 194,000 (Briefing.com consensus 200,000). November unemployment rate was 4.2% (Briefing.com consensus 4.2%), versus 4.1% in October. November average hourly earnings were up 0.4% (Briefing.com consensus 0.3%) versus 0.4% in October.
  • The key takeaway from the report is that it 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.
• The preliminary University of Michigan Index of Consumer Sentiment for December increased to 74.0 (Briefing.com consensus 73.5) from the final reading of 71.8 for November. In the same period a year ago, the index stood at 69.7.
  • The key takeaway from the report is the understanding that consumers were targeting the purchase of durables now to avoid what they think will be higher prices in the future.
• Consumer credit increased by $19.2 billion in October (Briefing.com consensus $10.5 billion) after increasing a downwardly revised $3.2 billion (from $6.0 billion) in September.
  • The key takeaway from the report is that the expansion of consumer credit was driven by revolving credit, showing a propensity by consumers to use credit for their spending activity.