4.05pm: Jobs in focus
Santa Claus had left Wall Street by the time the markets closed on Thursday, with two out of three major indices closing in the red.
The S&P 500 lost 0.1% to close at 4,077 points, and the Dow was down 0.6% at 34,395. The Nasdaq bucked the trend with a 0.1% gain to finish at 11,482 points.
Friday sees the release of key US job data, with investors expecting a slowdown in growth. Analysts are hoping to see a gain of 200,000 jobs, down from 261,000 the previous month.
The report should provide further evidence of the economy normalizing after its rapid bounce back from the pandemic recession, according to Dean Baker, senior economist at the Center for Economic Policy and Research.
"The big questions will be whether wage growth has slowed to a pace consistent with the Fed’s inflation target and whether job growth has slowed to a sustainable pace," Baker wrote.
12:28pm: Costco (NASDAQ:COST) stock falls on slowing sales growth
Shortly after midday, the Dow was down 342 points, 1%, to 34,248, the Nasdaq Composite lost 33 points, 0.3%, to 11,435 and the S&P 500 slid 19 points, 0.5%, to 4,061.
The benchmarks all sank after a mixed open, even after Fed chair Jerome Powell took less a hawkish stance in his Wednesday remarks.
“Yesterday’s comments from Powell over the willingness to slow the pace of tightening has helped boost risk assets, to the detriment of the dollar," said Joshua Mahony, senior market analyst at IG. "However, it seems the rebound for US stocks has been relatively short-term in nature, with the Dow leading the losses today. Financial stocks have particularly felt the pressure, with expectations of a slower and lower approach from the Fed serving to limit margin expectations for banks. While Powell’s stance that the rate rise should move at a slower pace is nothing new, markets appear to be pricing in a lower terminal rate, much to the dismay of US bank stocks. ”
Among the laggards is Costco (NASDAQ:COST) Wholesale Group, shares of which fell more than 6% after the company posted a sales increase of 5.7% for November, lower than its 7.7% figure. Costco also reported a 10.1% decline in e-commerce sales.
9.35am: Inflation cooling, new data shows
US stocks opened mixed after yesterday afternoon’s gains with investor sentiment bolstered by Fed chair Jerome Powell’s less hawkish stance and a cooling core personal consumption expenditure (PCE).
The Fed’s preferred gauge of inflation, the annual core PCE price index, declined to 5% from 5.2% in October, on par with the consensus analyst expectation.
Personal spending and personal income rose by 0.8% and 0.7% respectively month-over-month.
Forex.com market analyst Fiona Cincotta said today’s data was enough to keep the market happy that inflation was moving in the right direction.
“However, it is a small decline, highlighting that this is likely to be a long journey,” she said.
Meanwhile, initial jobless claims for the week ended November 26 fell to 225,000, down from 241,000 in the week prior and below the expected 235,000.
“Overall, the data is upbeat, showing that the economy is still holding up while inflation is cooling,” Cincotta noted. “If it continues like this, then a soft landing for the US economy could be likely.”
Just after the market opened, the Dow Jones Industrial Average had shed 32 points or 0.1% at 34,558 points, while the S&P 500 had added 10 points or 0.3% at 4,091 points and the Nasdaq Composite was up 30 points or 0.3% at 11,450 points.
6:30am: Some caution
US stocks are expected to open slightly lower on Thursday, giving back some of the gains seen after Federal Reserve chairman Jerome Powell signaled that the pace of interest rate hikes in the US will ease although borrowing costs will stay higher for longer.
Futures for the Dow Jones Industrial Average were down 0.1% in pre-market trading, while those for the S&P 500 were 0.2% lower, and contracts for the Nasdaq-100 shed 0.2%.
"While it could be argued that Jerome Powell's comments on Wednesday were relatively balanced - slower tightening now but rates high for longer - the last year has proven that anticipating the path of inflation even a short period ahead is incredibly difficult,” noted Craig Irlam, senior market analyst at Oanda.com.
“Knowing what the Fed intends to do next is far more valuable than what it thinks it may do 6-12 months down the line,” he added.
The Federal Reserve 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.
Anything that is perceived to reduce to possibility of an interest rate recession is going to be a positive for equity markets, said Irlam.
“The Fed has every opportunity to tighten more in the months ahead if the data doesn't play ball. What's far more difficult is undoing the damage caused by moving too fast now with little to no visibility on how impactful past tightening has been,” he added.
The strength of the labor market is also a key factor underpinning the wider US economy. To that end, the US non-farm payroll numbers, due out on Friday, will be important. Consensus points to an increase of around 200,000 in November after a 261,000 gain the previous month.
The data calendar today includes the Federal Reserve’s preferred measure of inflation, the PCE price index. Any sign that inflationary pressures are easing in this gauge will likely boost stocks.
Elsewhere, markets have also been cautiously optimistic over recent developments in China, welcoming hints that China’s government could ease its Covid curbs in response to citizen protests.
Contact the author at jon.hopkins@proactiveinvestors.com