U.S. stocks fell, to end a three-day rally, in the wake of conflicting words from White House officials and President Trump that a trade plan for China was in the works and tech sector weakness following Dow member Apple’s disappointing guidance.
Another stronger-than-expected labor report reflected a tight labor market ahead of voters weighing in at next week’s midterm elections.
Treasury yields were notably higher and the U.S. dollar dipped for a second day. Crude oil was lower and gold prices were higher.
The Dow Jones Industrial Average fell 111 points (0.4%) to 25,269
The S&P 500 Index decreased 18 points (0.6%) to 2,723
The Nasdaq Composite dropped 77 points (1.0%) to 7,357
In heavy volume, 1.0 billion shares were traded on the NYSE and 2.9 billion shares changed hands on the Nasdaq
WTI crude oil fell $0.83 to $62.89 per barrel and wholesale gasoline was $0.02 lower at $1.70 per gallon
The Bloomberg gold spot price decreased $0.41 to $1,233.02 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 96.47
October labor report shows job growth topped forecasts, trade deficit widens
Non-farm payrolls rose by 250,000 jobs month-over-month in October, compared to the Bloomberg forecast of a 200,000 increase, but the rise of 134,000 seen in September was revised to a gain of 118,000 jobs. The net revisions to job gains for September and August offset each other. Excluding government hiring and firing, private sector payrolls increased by 246,000, versus the anticipated gain of 195,000, after rising by an unrevised 121,000 in September.
The unemployment rate remained at 3.7%, matching estimates, while average hourly earnings were up 0.2% month-over-month, in line with projections and below September’s unrevised 0.3% gain. Y/Y, wage gains were 3.1% higher, matching estimates, and versus September’s 2.8% rise. Finally, average weekly hours were 34.5, up slightly from September’s revised lower 34.4 rate, as expected. The bounce in pay for American workers was the largest since 2009, while unemployment remained at a 48-year low.
Treasuries were lower, as the yields on the 2-year note, 10-year note and 30-year bond increased 8 basis points (bps) to 2.91%, 3.21% and 3.45%, respectively.
On the backstretch of earnings season about 61% of S&P 500 companies have topped revenue forecasts and approximately 83% have bested profit projections per Bloomberg. The continuing earnings focus has been matched with Brexit negotiations, the Italian budget battle, and mixed trade headlines to hinder market sentiment.
The trade balance showed that the deficit widened more than expected to $54.0 billion in September, compared to forecasts of $53.6 billion. August’s deficit was revised upward to $53.3 billion. Exports were up 1.5% m/m at $212.6 billion, while imports also gained 1.5% m/m to $266.6 billion.
Europe moved higher, Asia rallied on trade optimism
European equities saw widespread gains to end the week, with the markets digesting the stronger-than-expected U.S. employment report, while the global markets received a boost from conflicting trade reports. The markets shrugged off a disappointing Eurozone manufacturing report from Markit, which showed growth slowed more than preliminarily reported for October.
The euro ticked lower versus the U.S. dollar, while the British pound modestly gave back yesterday’s rally. U.K. equities were down, German, French, Italian, and Spanish shares advanced, while Swiss stocks moved lower. Bond yields in the region were mixed.
Stocks in Asia rallied broadly on the heels of the third-straight gain in the U.S. Cooled trade concerns have helped overshadow the recent concerns regarding slowing global growth on the heels of some softer-than-expected Chinese and U.S. manufacturing data.
Japanese stocks rose, with the yen giving back early gains late in the session, while mainland Chinese and Hong Kong equities advanced.
South Korean markets rallied, India’s equities gained ground, and Australian stocks ticked higher.
Stocks rise but volatility remains
U.S. stocks rebounded for the week, trimming October’s tumble that brought a brief drop into correction territory amid increasing choppiness. Another full week of earnings nurtured mixed responses, as trade and global political reservations remained at the forefront of investors’ minds.
Consumer Confidence hit an 18-year high and non-farm productivity numbers slightly beat expectations but fell from the previous quarter. The ISM Manufacturing Index came in softer than expected, reinforcing global growth deceleration concerns. Treasury yields rose, with the 10-year note moving in on early October’s multi-year high and the 30-year bond yield climbing back to a 2014 high.
The U.S. dollar dipped lower, with the British pound rising notably higher following a more hawkish Bank of England stance and optimism of a Brexit deal drawing closer. Crude oil price fell again, with oil inventories extending a weekly inventory build streak, joining the aforementioned global growth concerns and as Iranian sanctions loom.
Next week will bring a fully-loaded docket of data that could bring some volatility to the market again. Earnings season will remain stout and the economic calendar will deliver an abundance of key reports, including job openings, the University of Michigan Consumer Sentiment Index, unit labor costs, the Producer Price Index and the ISM Non-Manufacturing Index.
The mid-term elections will garner attention for clues on the future balance of power in Washington. However, the headlining event will likely come in the form of Thursday’s conclusion of the November Fed meeting. Although there will be no press conference or updated economic projections from the Fed, scrutiny will remain regarding whether it will remain on the current path to policy normalization.
Lastly, history shows that stocks tend to face a seasonal tailwind heading into the end of the year, but there will likely be more volatility. However, at least overly optimistic investor sentiment has eased, U.S. economic growth remains solid, and the midterm elections will soon be over, all of which could trigger at least a relief rally off the recent lows. But gains both here and globally are likely limited by myriad late-cycle pressures.