Employment situation in November was solid

There has been a some back and forth in the stock market this week, as the indices have hinged on the rotation in, out, between, and all around the mega-cap stocks. Yesterday was a very good day for the mega-cap stocks and that translated into a good day for the market. Still, it wasn’t enough to pull the market higher for the week.

Entering today, the market-cap weighted S&P 500 is down 0.2% for the week and the equal-weighted S&P 500 is down 0.3% for the week.

Not to sound glib, but the market could go either way today, resulting in a winning week or a losing week. We say that knowing that the November employment report was a solid report overall, but also knowing that, because it was solid, it didn’t necessarily support the market’s notion that the Fed will cut rates sooner than later.

Today, therefore, could give us a glimpse of whether the market sees good economic news as good news for earnings or good economic news as bad news for the rate-cut appetizer it has been feasting on the last five weeks.

The S&P 500 futures are down seven points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 68 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 40 points and are trading fractionally below fair value.

Notably, Treasury yields moved higher immediately after the release that featured a 199,000 increase in nonfarm payrolls, a drop in the unemployment rate to 3.7% from 3.9%, and a larger-than-expected 0.4% month-over-month increase in average hourly earnings that left the year-over-year change at a moderating 4.0%.

The key takeaway from the report is the recognition that the unemployment rate dropped as the participation rate increased, which suggests hiring activity in November was — word of the day — solid. In fact, the number of employed civilians increased by 747,000 while the number of unemployed civilians decreased by 215,000.

The 2-yr note yield, at 4.63% just before the report, shot up to 4.72% and is at 4.69% now. The 10-yr note yield, at 4.18% just before the report, spiked to 4.27% and is at 4.23% now. The probability of a 25 basis points rate cut at the March 2024 FOMC meeting has been reduced to 50.3% from 64.5%.

 Notable headlines from the September Employment Situation Report:

• November nonfarm payrolls increased by 199,000 (Briefing.com consensus 175,000). The 3-month average for total nonfarm payrolls increased to 204,000 from 192,000. October nonfarm payrolls unrevised  at 150,000. September nonfarm payrolls revised to 262,000 from 297,000.
• November private sector payrolls increased by 150,000 (Briefing.com consensus 155,000). October private sector payrolls revised to 85,000 from 99,000. September private sector payrolls revised to 199,000 from 246,000.
• November unemployment rate was 3.7% (Briefing.com consensus 3.9%), versus 3.9% in October. Persons unemployed for 27 weeks or more accounted for 18.3% of the unemployed versus 19.8% in October. The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.0% versus 7.2% in October.
• November average hourly earnings were up 0.4% (Briefing.com consensus 0.2%) versus 0.2% in October. Over the last 12 months, average hourly earnings have risen 4.0%, versus 4.0% for the 12 months ending in October.
• The average workweek in November was 34.4 hours (Briefing.com consensus 34.3), versus 34.3 hours in October. Manufacturing workweek was unchanged at 40.0 hours. Factory overtime was unchanged at 2.9 hours.
• The labor force participation rate increased to 62.8% from 62.7% in October.
• The employment-population ratio jumped to 60.5% from 60.2% in October.

Beyond today’s important employment report, some added attention will also be paid to the earnings results from the likes of Broadcom (AVGO), lululemon athletica (LULU), and DocuSign (DOCU), as well as to the behavior of the mega-cap stocks versus the rest of the market, which has been a driving force this week. 

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Originally Posted December 8, 2023 – Employment situation in November was solid