Jobs Report Beats Expectations With 199K Added, Putting Early Pressure on Stocks, Treasuries

Jobs report shows 199,000 created in November as unemployment dips to 3.7%, quickly causing yields to rally, which could pressure sectors like real estate and utilities.
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Key Takeaways

  • Unemployment dips to 3.7% and 199,000 new jobs beat analyst expectations

  • Crude oil on track for seventh straight weekly decline on demand concerns

  • Next week includes inflation data, FOMC and ECB meetings, Oracle earnings

(Friday market open) The U.S. jobs market rebounded in November with better-than-expected growth, falling unemployment, and higher wages, the government said Friday. Treasury yields immediately moved sharply higher as investors contemplated possibilities that the data could delay anticipated 2024 Federal Reserve rate cuts, and major stock indexes edged lower.

The monthly Nonfarm Payrolls report showed 199,000 jobs created in November, up sharply from October’s 150,000. However, the fresh data reflected manufacturing workers getting back to work after a strike by auto industry employees. Unemployment dropped to 3.7% from 3.9%, and average hourly wages climbed 0.4% month-over-month. All of these numbers reflected more labor market strength than analysts had anticipated ahead of the report.

“The report was a bit stronger than expected, with the drop in the unemployment rate to 3.7% likely the most headline-grabbing, while average hourly earnings rose by the most since June on a month over month basis,” said Collin Martin, a director of fixed income strategy at the Schwab Center for Financial Research. “Treasury yields rose a bit on the news, but this report is nowhere near strong enough to nudge the Fed into a rate hike next week.”

Immediately following the data, the benchmark 10-year Treasury note yield popped double digits to above 4.2%, which could hurt major indexes. Rate-sensitive sectors like real estate and utilities, as well as small-cap stocks, may feel more pressure if the yield rally persists.

Today’s data only represents one month, and the Fed looks at a host of economic indicators. Still, at first glance, this report appears to lean in favor of those who predict a longer wait for 2024 rate cuts.

Looking back at Thursday’s solid Wall Street session, technology led the way on sharp gains in shares of Google parent Alphabet (GOOGL), Advanced Micro Devices (AMD) and other companies serving artificial intelligence. All this lifted the Nasdaq Composite® ($COMP) to its highest close since late July.

Morning rush

  • The 10-year U.S. Treasury Yield (TNX) jumped 10 basis points to 4.23% after the jobs report.
  • The U.S. Dollar Index ($DXY) inched up to 103.87.
  • Cboe Volatility Index® futures fell to 12.83.
  • WTI Crude Oil (/CL) is up nearly 2% at $70.71 per barrel.

Just in

The government made only minor revisions to previous jobs reports, cutting 35,000 positions from September’s growth. Healthcare and leisure and hospitality were contributors to the job growth outside the returning strike workers, while average work week hours ticked higher to 34.4 from 34.3 as well.

Government employment rose while retail sector jobs backtracked in November, the government said. Year-over-year wage growth of 4% was in line with analysts’ expectations.

In sum, the report was hot, but it’s not necessarily a game changer.

“It’s not enough to counter any of the cooling in the labor market that the data has conveyed over the past couple of months,” said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. “It’s a single report, and it’s not uncommon to get some outlier moves like the tick down in the unemployment rate, so traders may now turn their eyes to next week’s CPI/PPI/FOMC since there isn’t enough in this report to counter the soft landing thesis.”

Approaching the report, analysts pegged November jobs growth at 180,000 and November unemployment at 3.9%, according to Trading Economics. Average hourly wages had been expected to grow 0.3% monthly and 4% year over year.

Softer labor numbers earlier this week fueled views that the Fed’s rate hikes slowed jobs growth, but any given monthly employment report could deliver a surprise. To smooth out the data, investors might want to check the three-month average of jobs creation.

What to watch

Peek ahead: Anyone considering an early holiday vacation might want to wait until after next Wednesday, at least if they’re following the markets. Tuesday and Wednesday offer a quick blast of key inflation data and the Federal Open Market Committee (FOMC) meeting, all of which could help set Wall Street’s tone heading into the new year. Monday looks quiet by comparison, but a series of Treasury auctions that day could interrupt the calm.

The Fed is widely expected to keep interest rates on pause when it delivers its decision Wednesday afternoon, but this meeting also includes policy makers’ projections of economic and rate paths for the coming years.

Pricing power: Even as the Fed meets, investors get their hands on November’s Consumer Price Index (CPI) and November Producer Price Index (PPI) data Tuesday and Wednesday mornings, respectively. The recent 10% Wall Street rally drew energy from October’s mild inflation readings, which eased concerns about potential rate hikes and also helped underpin ideas that earnings could have a clearer growth path next year.

No single data point is a trend, but any sign of inflation regaining traction in November would probably receive a rude greeting from both stocks and Treasuries. Yields, which have steadily fallen, would conceivably jump on a bearish inflation reading, especially if it’s in the core CPI that strips out volatile food and energy prices.

Late this week, analysts expected monthly core CPI growth of 0.2% in November, equal to the October rise, according to Trading Economics. Headline CPI is expected to rise 0.1% after a flat reading in October.

On second thought, maybe put off that vacation until next Friday, because Thursday features rate decisions from the Bank of England (BoE) and the European Central Bank (ECB). Canada’s central bank kicked off the monetary proceedings this week by keeping rates unchanged, but policy makers in the great white north still think there’s work to do fighting inflation.

Taking care of business: Getting back to today, preliminary December Consumer Sentiment from the University of Michigan is due soon after the open. This data point wallowed near six-month lows in November, but U.S. Consumer Confidence recently rebounded. Analysts expect a headline sentiment figure of 62.6, up from November’s 61.3 but well below summer highs that topped 70. Inflation expectations are another important aspect of the report to monitor. Both one-year and five-year inflation expectations climbed this fall, something the Fed can’t be too happy about as it tries to keep those expectations “anchored,” to borrow a term often used by Fed Chairman Jerome Powell.

Stocks in spotlight

I am your twin: Yesterday afternoon’s two big earnings reports from Lululemon (LULU) and Broadcom (AVGO) shared some things in common, though it would be hard to find two companies that look more different. Both beat Wall Street’s quarterly earnings per share estimates, both posted revenue in line with analysts’ estimates, and both saw immediate share declines after reporting.

One obvious issue was that Lululemon’s Q4 earnings guidance tracked below Wall Street’s thinking. Broadcom’s guidance wasn’t easy to compare with analysts’ previous estimates because it included contributions from its recent acquisition of cloud-computing firm VMware. That deal closed late last month after receiving regulatory approval from China. Several analysts raised their price targets on Broadcom following the results.

Enterprise IT leader Oracle (ORCL) earnings loom Monday, followed by home builder Lennar (LEN) later next week.

Major Asian indexes came under pressure this week from soft economic data, including a worse-than-expected Gross Domestic Product (GDP) reading from Japan. European stocks are on track for weekly gains.

Eye on the Fed

After the jobs data, futures trading pegged chances at 96% of the Federal Open Market Committee (FOMC) holding its benchmark funds rate steady following its December 12–13 meeting, according to the CME FedWatch Tool. Chances of rates staying on pause following the FOMC’s January 30–31 meeting are 92%. The market prices in a 49% chance that rates will be lower than now after the Fed’s March meeting. That’s down from around 60% before the jobs data.

CHART OF THE DAY: STEALTH OP. Very quietly, both the Russell 2000 (RUT-purple line) and the S&P 500 Equal Weight Index (SPXEW-blue line) have outgained the Technology Select Sector Index (IXT-candlesticks) over the last month, possibly a sign of investor rotation away from the mega-caps and into a broader mix of stocks. Data sources: FTSE Russell, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Sector stealth: Thursday saw the usual suspects—information technology, communication services, and consumer discretionary—top the sector scoreboard. Even so, market breadth continues to improve. As of Thursday, 81% of S&P 500 stocks traded above their 50-day moving averages, a sign that rising tides lifted more than just the yachts. And over the last month, the Russell 2000 and the SPX Equal Weight Index, which weighs all stocks equally rather than by market cap, both outpaced the SPX and its mega-cap dependent performance. Earlier this year, rallies often reflected gains in the very largest tech and communication services stocks. That’s not the case now, with real estate, industrials, financials, and consumer discretionary all up 6% or more over the last month to outpace the SPX’s 4.7% gains. Info tech and communication services are middle of the pack since early November, suggesting investors are spreading their wings and aren’t just snapping up the Apples (AAPL) and Microsofts (MSFT) of the world. Whether this continues into the new year could depend on inflation staying tame and Treasury yields giving these sectors room to breathe.

Tech jump: Amid tech strength Thursday, the Philadelphia Semiconductor Index (SOX) gained nearly 3%, getting a major boost from) Advanced Micro Devices after the company announced new chips designed to serve growing demand for generative AI. Financial shares also did well yesterday. Energy stocks brought up the rear over the last week as crude oil is on track for its seventh straight weekly decline amid global demand concerns. At the same time, we’re seeing what Schwab’s Chief Investment Strategist Liz Ann Sonders calls a “stealthy” rotation within equities, with the S&P 500 Equal Weight Index (SPXEW) and the Russell 2000® (RUT) small-cap index beating both the S&P 500® index (SPX) and the Nasdaq Composite over the past month or so.

Holiday spirits: Today’s preliminary December consumer sentiment number takes on added significance as holiday shopping approaches its annual peak. Gallup said this week that shoppers surveyed in November expected to spend $975 on Christmas or other holiday gifts, up from $923 in the firm’s October survey and a record high. On the other hand, retailers reporting over the last month said consumers are cautious and looking for bargains. Though inflation growth has slowed dramatically over the last year and a half, many people are still wrestling with the fact that prices are up significantly from two or three years ago for many products, and some items like meat remain quite expensive. In addition, people are back to paying off their student loans and most of the pandemic-era stimulus has been eaten through. Next Thursday’s November Retail Sales report gives investors a dollars-and-cents view of early holiday season spending, including some granular data on which retail segments enjoy strong demand and which ones struggle, which could be helpful if you’re eying investments in any individual retail firms. Retail sales have held up relatively well in recent months.


Dec. 11: Oracle (ORCL) earnings.

Dec. 12: November CPI and core CPI.

Dec. 13: FOMC rate decision, November PPI.

Dec. 14: November Retail Sales and expected earnings from Costco (COST) and Lennar (LEN).

Dec. 15: November Industrial Production, November Capacity Utilization, and expected earnings from Darden Restaurants (DRI).

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Charles Schwab & Co., Inc. (“Schwab”) and TD Ameritrade, Inc., members SIPC are separate but affiliated subsidiaries of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.


Key Takeaways

  • Unemployment dips to 3.7% and 199,000 new jobs beat analyst expectations

  • Crude oil on track for seventh straight weekly decline on demand concerns

  • Next week includes inflation data, FOMC and ECB meetings, Oracle earnings

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