After the tremendous upside rally for the past few days, the market took a well-deserved rest on Friday, as once again strong crosscurrents about the labor market, inflation and higher interest rates, in addition to some disappointing earnings from technology giants, led to a lower session.
The Dow began down after a very strong jobs report and typical of the pattern this year, began to rally and got as high as a 126 point gain by 12noon led by advances in AXP and CAT. But from there, selling overtook the day as declines in BA, CAT, HD, HON and MSFT led it to a final loss of 128 down to 33,926. It was the only major index to end lower for the week, a modest decline of 57 points. But it is still ahead by 2.4% for the year.
The S&P followed the same pattern with a lower start to a modest gain of 3 before a final selling spree that left it lower by 43 down to 4136 as weakness in those large technology stocks after their tremendous runups this year, did the index in. But it is still higher for four out of the past five weeks and has gained 15.6% since its mid-October lows and is ahead by 7.7% in 2023.
The Nasdaq fell by 193 down to 12,006 but is still strongly ahead for 2023 by 14.7% as AMZN, GOOG, SBUX and QCOM all came down on their earnings, but AAPL continued to grind higher after starting lower as a result of its report.
The Russell 2000 Index of small stocks also ended lower by 15 down to 1985 while the VIX, in its strange pattern this year, fell on a down day in the market and ended at 18.33, which could lead to some further selling from taking place because of its low level.
Interest rates rose on the very surprising 517,000 gain in the January jobs report with unemployment falling to a 60 year low of 3.4% and this led once again to the belief that the Fed will not be so quick to reverse course on potentially lowering rates as the federal funds futures market has believed for quite a while now.
It is now going to get more difficult to argue that rate cuts may be in 2023’s future if the labor market is able to continue like this, especially considering that it remains to be seen how quickly inflation will fall, even if we have reached the peak from last summer.
Treasury yields jumped higher immediately after the jobs report on forecasts for a firm Fed as the yield on the 2-year Treasury rose to 4.30% from 4.10% late Thursday while the 10-year increased to 3.53% from 3.40%.
Perhaps the reason for the late-morning rally in the market was a belief that the average hourly earnings for workers that were 4.4% higher in January than a year earlier, was still a slowdown from December’s 4.8% raise, though it was a touch above expectations. Slower wage gains can mean less pressure on inflation, though it hurts workers trying to keep up with rising prices at the register.
The Fed has been downplaying the importance of the unemployment rate and payrolls number, focusing more on wage gains instead so the fact that wage gains were somewhat in line with consensus expectations, means that perhaps the Fed could begin to ease up later in the year.
Also helping to confuse the current thinking was that the January ISM Services Sector report came in stronger than expected with a gain up to 55.2 although the report also suggested that pricing pressures may be easing.
This week sees the fourth-quarter earnings reporting season start to come into the homestretch with the following: today – CMI, ON higher and TSN lower; tonight – ATVI, CHGG, PINS, SPG, SAVE, TTWO; Tuesday – CMG, DD, OMG, RCL; Wednesday – CVS, MGM, ORLY, UBER, YUM; Thursday – EXPE, HLT, K, PYPL, MO; Friday – NWL.
Economic reports will have: Tuesday – December trade deficit; Thursday – weekly jobless claims; Friday – February mid-month U. of Michigan Consumer Sentiment Survey.
And let it be noted that tomorrow, Fed Chair Powell will deliver an address about the economy to the Economic Club of New York, which the market will obviously be paying attention to and could move things one way or the other.
Donald M. Selkin
Chief Market Strategist
Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.