Stocks Reach Record Highs on Jobs Report
Market Movers
- Nonfarm Payrolls of 128,000 beat the 85,000 estimate, fueling stock gains.
- Unemployment was in line at 3.6%, a 0.1% increase but labor force participation rose to 63.3% from 63.1%.
- ISM Manufacturing of 48.3 was again below survey (48.9) and the 50 level that indicates expansion.
Mike’s Commentary
This year stocks have been stuck in a trading range, so with the achievement of all time highs on Wednesday and a China trade-related selloff yesterday, it would not have surprised me to see a second consecutive day of market weakness. With a rate cut behind us, earnings related gains baked in and the China headlines incrementally negative, it seemed there were few catalysts to move stocks higher into the weekend.
Instead, we were treated to a stronger-than-expected jobs report, with Nonfarm Payrolls for October showing a 128,000 increase, well above the 85,000 median estimate. September’s reported increase of 136,000 was also revised higher, to 180,000. Private payrolls of 131,000 also beat the 80,000 estimate. Meanwhile unemployment held steady at 3.6%. Wage growth was a solid, and in-line, 3.0% and labor force participation of 63.3% is the highest since 2013.
This gives investors hope that consumers can continue to keep spending and keep the expansion going. With holiday season upon us and manufacturing releases weak lately, the consumer is being called upon to shoulder the load. By the way, if you have Sirius satellite radio, you can tune to Channel 70, which is the “The Hallmark Channel” during this time of year (and is the very awesome Yacht Rock during the summer). The station began playing Christmas songs a week ago. My wife thinks I’m nuts but I’m into it.
Back to manufacturing, ISM manufacturing of 48.3 was below the 48.9 estimate and below the 50 level that indicates expansion for the third straight month. Firms continue to cite moderating activity, trade war/tariffs and slower global growth. A separate Markit Manufacturing Index released today showed a modest improvement to 51.3 in October from 51.1 in September. Either way, the market has seemed to accept the fact that manufacturing has been sluggish and for today at least is focusing on the consumer & services side of the economy. The number also gives a ray of hope that some of the summer weakness could be behind us.
Put that all together with some good earnings and a new positive read on Chinese manufacturing data, stocks moved higher by about 250 Dow points during the morning, treasuries moved lower and the odds of a December rate cut were halved to about one in eight. Safety sectors like Staples REITs and Utilities sold off with economically sensitive sectors like Energy, Industrials and Materials leading (see table below).
Seasonally November is a good month for stocks, with the S&P rising in each of the past eight years and eight of the past ten. December, incidentally, has risen in seven of the past ten, but last year’s 9.2% decline was the second-worst monthly decline in ten years with only February 2009 worse. Let’s hope past seasonality portends some positive market action over the next two months.
Sector Recap
Brian’s Technical Take
From a technical perspective this been a significant week for the equity markets as a number of previously underperforming sectors have made “breakouts” above clearly defined resistance levels. The hallmark of a bull market is sector rotation and in the September 11th and 12th MIDDAY Updates we noted two groups, healthcare and industrials, looked poised to be the beneficiary of such rotation based on their constructive technical setups. This week that rotation appears to be underway as the recent breakout in the financials (BKX Index) is now being accompanied by healthcare and industrials.
On Monday of this week we highlighted the Nasdaq Biotech Index (NBI) whose technical setup we characterized as being at a key inflection point pushing up against a cluster of technical resistance representing (1) the declining trend line from its 2018 highs, and (2) the 40-week moving average. A breakout we noted would be a tailwind for the broader healthcare sector. Sure enough the NBI is +3.7% this week which is the 2nd top performer on my list of 60+ industries. Accordingly healthcare is this week’s top performing GICS sector with the S&P 500 healthcare index +3.7%. The healthcare index is now within 1% of making new all-time highs while the NBI remains more than 12% below 2018’s highs.
The S&P500 industrials index has gained a modest 1.4% this week but more importantly it has broken out of a six month range and is currently within 1.5% of its all-time highs made in January 2018. In the September write-up we noted a breakout carries a measured move to the 825 level, +23% from today’s level.
Financials and healthcare have a combined 43% weighting in the underperforming small-cap Russell 2000 index. According the Russell is this week’s top performing U.S. equity benchmark with a gain of 1.6% and itself is breaking out above a five month resistance line.
Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen-based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen-based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq, Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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