Just Missed: Jobs Data Disappoint, but a Deeper Dive Doesn’t Reveal Huge Cracks

Stocks remain in record territory despite a weaker than expected jobs number. But several big-name retailers posted disappointing earnings. Next week, the big banks open their books to kick off a fresh earnings season.

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Key Takeaways

  • Stocks trim gains after jobs report misses expectations

  • DJIA closing in on 29,000 mark

  • Retail stocks licking wounds after rough day Thursday

(Friday Market Open) Today’s jobs number might be on the low side, but at first glance it looks like one the market can probably live with.

While stock futures saw their pre-market gains roll back a little after the government reported a lower-than-expected December payrolls gain of 145,000, that’s a figure well within the range economists say is needed to keep unemployment near current 50-year lows. It’s also not the kind of number that’s going to necessarily get the Fed worried about any signs of creeping inflation.

Last month’s gains came in below the average Wall Street projection of 160,000, and the government also cut the number of jobs added in October and November just slightly. However, average job gains remain in great shape for Q4, and it seems unlikely that  the market will really focus on a relatively neutral report like this for too long, especially with earnings just around the corner. It’s not the kind of data that would scare the children.

Unemployment remains low, and job gains over the last three months averaged a healthy 184,000. That’s just about a “Goldilocks” number because it signals decent economic growth without a real inflation threat. 

Average hourly earnings rose 2.9% over the last year, which gives workers some extra money in their wallets but doesn’t necessarily mean employers need to raise prices to write their paychecks. Checking where employment rose in December, it was generally in some of the industries that aren’t really well known for their high pay, including retail and leisure and hospitality.

Jobs in construction rose 20,000, which was good to see, but the Labor Department pointed out that construction job gains in 2019 were just half of the 2018 level. Does that mean the slower economic growth caused infrastructure spending to slow? Perhaps.

The unemployment rate of 3.5% remains at 50-year lows, and the Fed recently forecast it expects the rate to stay down in 2020. That’s good news for the economy. However, the government did trim the October and November employment gains by a combined 14,000.

Remember, too, that the November job gains of a revised 256,000 reflected a one-time surge as workers from General Motors (GM) returned from their strike last fall. No one should be surprised that December’s job gains couldn’t match November’s gigantic number.

If you want to pick on the report, maybe look at the average work week being unchanged from November, and the minor drops in manufacturing and warehousing jobs. None of those numbers was really too terrible, but they might bear watching to see if negative growth in those industries continued into January.

The rise in retail jobs might have reflected some consumer strength heading into the holidays, so that’s one positive takeaway. On the other hand, retail jobs don’t tend to be high-paying ones, and that might have helped keep wage gains in check at below 3%. Despite the potential inflationary impact, it would be nice to see pay rising a bit more in general. 

What’s Next?

Looking ahead to the rest of the day, things appear pretty quiet from a data perspective, and the earnings calendar ahead of the weekend seems about as exciting as watching paint dry. Monday is practically a blank slate for both data and earnings. The fun begins Tuesday morning with JP Morgan (JPM), Citigroup (C), and Wells Fargo (WFC) reporting, along with Delta (DAL).

Other big banks follow with earnings reports of their own later next week, with Bank of America (BAC), Goldman Sachs (GS), and Morgan Stanley (MS) all lined up. Get your pencils and scorecards ready, everyone.

Investors also receive their first 2020 look at consumer and producer prices next week, with the December consumer price index (CPI) report due Tuesday and producer price index (PPI) on Wednesday. Both of these inflation indicators came in kind of muted in November, so we’ll see if that continued. 

Yesterday’s rally reflected a bunch of things beyond just the drop in tensions with Iran. Other positive factors included several analyst upgrades, weekly jobless claims returning to lower levels, and China confirming Vice Premier Liu He will visit Washington next week to sign the Phase One trade deal. 

Major companies receiving analyst upgrades over the last day or two included Goldman Sachs, Advanced Micro Devices (AMD), and CocaCola (KO), Briefing.com noted.

Though it’s really more symbolic than anything else, there’s a chance the Dow Jones Industrial Average ($DJI) could hit 29,000 for the first time today—judging from pre-market trading. One thing about milestones is that sometimes they can help add to bullish spirits on the Street. There’s something about big round numbers that people tend to like. 

Wreckage in Retail

Even as the broader market marched to new record highs Thursday amid relief about geopolitical tension easing, there was no relief in the retail aisle as shares of some major stores crumbled. Weaker than expected holiday sales hurt J.C. Penney (JCP) and Kohl’s (KSS), while Bed Bath & Beyond (BBBY) took a nearly 20% dive after a quarter that the company’s president and CEO called “unsatisfactory.”

Something to remember about BBBY is that the CEO just took the reins and has a good pedigree in retail, coming from Target (TGT). There’s an investor meeting scheduled for April where he’s expected to outline some new plans for BBBY, so if you want silver lining, that could serve as some.

There’s not much silver lining for KSS or JCP, as holiday sales disappointed. These two shares got punished in a big way Thursday, and investor thinking might have been along the lines of, “if you can’t have a good holiday season with consumers this healthy, when will you have a good holiday season?” U.S. consumers have money burning a hole in their pockets, but they’re not spending it at these retailers. 

Macy’s (M) shares also fell Thursday, but not as dramatically. With traditional brick-and-mortar stores taking it on the chin lately, it could be interesting to see how the Amazons (AMZN) and Walmarts (WMT) of the world did last quarter. AMZN has, of course, always been an online seller, and WMT has spent years building inroads into web-based sales with lots of success.

In other corporate news, Boeing (BA) got a lift Thursday when it appeared that a missile, not technical failure, might have downed a Boeing 737 in Iran earlier this week. You never want to overlook the human tragedy of such an event, but with BA already under a regulatory microscope, perhaps investors felt relieved that it doesn’t look like the airplane had any issues before the crash. 

Though most of the major indices put in a strong performance Thursday, the small-cap Russell 2000 (RUT) barely climbed. The RUT just hasn’t been keeping up with large-caps. 

Gold slipped along with volatility on Thursday as fear ebbed, but Treasuries didn’t see much selling interest. The 10-year yield is right in the middle of its recent range at around 1.85%. The dollar index has moved up a little from recent lows to trade near 97.50, also a mid-range number. 

iPhones Ringing in China

It’s amazing to think that just a year ago, shares of Apple (AAPL) were getting pounded as the company prepared to report its first holiday season revenue decline since 2001 and warned it would miss its own quarterly expectations. Weak iPhone sales in China took a lot of the blame back then. 

On the quarterly earnings call that followed, CEO Tim Cook told investors, “Macroeconomic factors will come and go, but we see great upside on continuing to focus on the things that we can control.” That must be what the company did, because the stock has basically doubled since then.

It gathered some more steam Thursday from reports in the media that year-over-year iPhone sales in China rose nearly 19% even as total phone sales in the region declined. That speaks to the possibility of big market share gains there for AAPL, and the stock gained 2% Thursday to reach all time highs at nearly $310 a share.

When a company like AAPL has a good day, there’s often an impact on the rest of the Technology sector, if not the market as a whole. Remember, AAPL is owned by hundreds of major mutual funds. When people see their portfolios jumping, it can often get them feeling more positive about things in general. That sometimes leads to a boomerang impact where buying brings more buying.

As a long-term investor, it’s important not to get too caught up in emotion, and stick to your plans. The temptation might be to buy more shares and get out of your comfort zone to benefit even more from the rally than maybe you are already. It’s easy to have dollar signs dancing in your eyes at times like this. However, it’s important to keep your head and not go all in, just as it’s not a good idea to dump your stocks just because of a down-trending market. In both up and down trends, chasing the market can be a dangerous game.

CHART OF THE DAY: A RETREAT IN CRUDE. After breaking out of a critical resistance level (yellow line) in December and hitting the mid-$60s, crude oil futures (/CL-candlestick) plunged and broke below the downward sloping previous resistance level. Easing of tensions between U.S. and Iran may have played a role in this price action and if prices continue to move lower, crude could move back into its $50–$60 range. It’s worth keeping an eye on that downward sloping trendline to see if it continues to act as a resistance level. Data Source: CME Group. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

How Much Are We Up? Depends on Perspective:  With the stock market rally resuming Thursday following a geopolitical interruption, you might hear talk about things getting overbought. While that’s definitely worth considering with the S&P 500 Index (SPX) up more than 30% over the last year, another school of thought suggests you can gain more perspective by looking farther back. For instance, to the end of Q3 2018. That’s when the market started to fall out of bed, with some indices sliding more than 20% by Christmas Eve 2018 and the SPX almost that much.

Since the end of Q3 2018, about 15 months ago, the SPX is up approximately 12%, not much more than the average annual market gain for the past 100 years. The dramatic Q4 losses in 2018 kind of distorted the overall picture. Basically, most of the gains in Q1 2019 were simply the market recovering what it had lost in Q4 2018. That’s a long way of saying that maybe things aren’t quite as stretched as some people think. The counter-argument is to note that stocks advanced nearly 30% last year even as earnings barely rose. And the counter to that is that the market fell 6% in 2018 despite massive earnings gains. 

Do Good Data Translate to Good Earnings? With earnings season right around the corner, there’s going to be a lot of focus on company profits. Better economic data could help many companies boost margins, and some recent numbers do look solid. This week’s ISM services headline data came in better than Wall Street analysts had expected, and a slightly narrowed November trade deficit also came as a positive development, research firm CFRA noted Wednesday. 

The question isn’t just whether these data, along with recent strength in housing, might start to boost earnings. It’s also whether the data can eventually help push economic growth from the anemic levels we saw through most of 2019. The Atlanta Fed’s GDP Now indicator this week pegged Q4 gross domestic product (GDP) growth at 2.3%, unchanged from its previous estimate. That’s actually above the level many analysts see. We won’t get a look at the government’s first Q4 GDP estimate until later this month.

Unleashed: People who’ve followed the markets a while probably know the term “animal spirits.” It was coined decades ago to explain what’s basically unexplainable, which is why markets sometimes seem primed to just keep going and going, like they say in that old commercial. We seem to be in an “animal spirits” mode right now, with the rally resuming right where it left off as tensions around the Middle East died down. There’s no way to peg just how long these good feelings can last, though it’s unusual to see it happen nearly a decade after the current bull market began. One thing we do know is that with earnings season beginning next week, the market will again be likely to focus on actual fundamentals, and that disappointing or surprisingly positive results from individual companies could start to exert more influence.

Good Trading,



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This week's economic calendar. Source: Briefing.com

Key Takeaways

  • Stocks trim gains after jobs report misses expectations

  • DJIA closing in on 29,000 mark

  • Retail stocks licking wounds after rough day Thursday

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