4:10pm: Dow finishes on solid footing
The Dow managed to recover its losses by the time the bell rang on Friday, but the S&P and Nasdaq felt the effects of a strong November jobs report.
At the close, the Dow was 0.1% ahead at 34,430 points, but the S&P 500 slipped 0.1% to 4,072 and the Nasdaq lost 0.2% at 11,462.
The hard economic data proved "remarkably resilient" this year, but withering liquidity, falling and contractionary PMIs, rising layoffs, depleted savings and the lagged impact of monetary policy on aggregate demand point towards a dour 2023, according to Christian Round of Powercourt.
"The uptick in average hourly earnings today contribute to that narrative pushing back against a potential easing in near term rate hike expectations. It’s now a question of the hard data catching up with the leading indicators. We are more inclined to fade, than chase, the equity relief rally and to gradually increase our exposure to bonds over time."
12:16pm: Investors look ahead to December Fed meeting
At midday, the Dow was down 77 points, 0.2%, to 4,318, the Nasdaq Composite dropped 78 points, 0.6%, to 11,404 and the S&P 500 shed 19 points, 0.5%, to 4,057.
The benchmarks remain in the red but have gained ground since the opening bell.
“Up until lunchtime, this week had been about a weakening dollar and a steady shift by the Fed away from the hawkishness of much of 2022," said Chris Beauchamp, chief market analyst at IG.
"But today’s job and wage numbers have given the greenback a lift, while sending stocks into retreat in the US. Gains have been trimmed in Europe, but it is the US where the losses have been felt. This was not the report investors had been hoping for it seems, since it suggests that inflation, and with it the Fed’s push to raise rates, is nowhere near done yet.”
The Federal Reserve's November jobs report was the last monthly report to come before the body's two-day meeting on December 13-14. Investors will be react to whether the Fed sticks with its pattern of rate hikes of 75 basis points or slows to a 50 basis point increase.
9.35am: Strong job growth sign Fed’s tightening may need to continue for longer, analyst says
US stocks tanked at the open on a hotter-than-expected November jobs report, which has reiterated the strength of the labor market.
The tech-laden Nasdaq Composite was trading sharply lower, down 140 points or 1.2% at 11,342 points just after the market opened, with the Dow Jones Industrial Average shedding 243 points or 0.7% at 34,152 points and the S&P 500 down 39 points or 1% at 4,037 points.
Head of investment at interactive investor Victoria Scholar noted that this month’s jobs report underscored the tightness of the labor market, which she said remains a bright spot in an otherwise weakening US economy.
“In terms of the Fed’s conundrum, this piece of data muddles the picture for a possible slowdown in rate hikes ahead, given that it suggests the employment market is slowing less than anticipated, adding to price pressures facing the economy,” Scholar said.
“The US dollar has jumped while short-term interest rate futures have dropped on anticipation that the Fed may not have as much wiggle room to shift towards a more dovish approach to rate hikes in terms of its combat against inflation.”
ING chief international economist James Knightley said the hot US jobs market backed the Fed’s call for higher interest rates.
He also noted that adding to the Fed’s problems, monetary conditions have loosened in recent weeks at the dollar and longer-dated Treasury yields have fallen and credit spreads have narrowed.
“As such, the Fed has more work to do and we look for further 50bp rate hikes in December and in February, with the potential for tightening needing to go on for longer,” Knightley said.
8.35am: November jobs data surprises
The US economy added 263,000 jobs in November, according to the latest non-farm payroll employment report from the Bureau of Labor Statistics.
Notable gains occurred in leisure and hospitality, healthcare, and government, while employment declined in retail trade, transportation and warehousing, the Bureau said.
This is an increase on the 261,000 jobs added in October, and far exceeds the consensus analyst expectation per a Bloomberg survey of 200,000.
The unemployment rate was unchanged at 3.7%, which was in line with analyst expectations.
Futures for the three major US indexes remained unchanged immediately following the news, with contracts for the S&P 500 steady at 4,080 points the Dow Jones Industrial Average down 0.2% at 34,370 points and the Nasdaq Composite down 0.2% at 12,038 points.
6:30am: More caution ahead of data
US stocks are expected to open modestly lower on Friday ahead of the closely watched non-farm payrolls data for November which will give a snapshot of the labor market in the world’s biggest economy at a crucial time in the current interest rate cycle.
Futures for the Dow Jones Industrial Average were down 0.1% in pre-market trading, while those for the S&P 500 were 0.1% lower, and contracts for the Nasdaq-100 shed 0.2%.
James Hughes, chief market analyst at scopemarkets.com said: “After the ADP payroll survey fell well short of expectations on Wednesday, further disappointment here is likely to heighten fears that the Fed may have played too hard a line in terms of rate hikes and that the pivot may have come too late.”
The US non-farm payrolls forecast is for 200,000 jobs to have been added last month, a slowing from 261,000 in October, while the unemployment rate is seen steady at 3.7%.
Investors will also be eyeing the average hourly earnings figures in the US labor market report, which is due out at 8.30am ET. Wage growth is seen at +0.3%.
“This number is expected to contract again and remain well below inflation, although given the broadly positive signals coming from retailers, the market may be willing to look beyond any meaningful slowdown here,” noted Hughes.
As ever, the overall focus will be on how the data could impact interest rate expectations especially as the strength of the labor market is also a key factor underpinning the wider US economy.
Earlier in the week, Federal Reserve chief Jerome Powell said that the pace of rate hikes will slow but that interest rates will stay higher for longer.
The Fed has delivered four 75 basis point interest rate hikes in as many meetings this year as it tries to curb runaway inflation levels. Investors are counting on rate setters to scale back on hikes amid the early signs that inflation may be starting to ease.
In data out on Thursday, the Fed’s preferred gauge of inflation, the annual core PCE price index, declined to 5% in November from 5.2% in the previous, in line with expectations.
Contact the author at jon.hopkins@proactiveinvestors.com