There November job report dealt a hard blow to stocks today, and data from the Department of Labor suggests the Federal Reserve still has a long way to go in its efforts to slow the economy. Specifically, the United States added a higher-than-expected 263,000 jobs in November, while the unemployment rate remained steady at 3.7% and average hourly earnings grew 5.1% year over year. Shares initially sold off sharply on the news, but the end of the day was not nearly as bad as the beginning.
“Investors are focused on persistent inflation and fears that the Federal Reserve’s aggressive rate hikes and balance sheet reductions will trigger a recessionSo today’s news that hourly earnings in the private sector grew 0.6%, which easily blew out the expected increase of 0.3%, is a hurtful interception during what has been an impressive comeback late in the fourth quarter,” said José Torres, senior economist at Interactive Brokers. “It’s the third consecutive month of earnings acceleration and it comes just two days after Fed Chairman Jerome Powell implies that labor market weakness is bound to tame decades of high inflation.”
As such, major market indexes suffered losses ranging from 0.9% to 1.6% at the beginning of the session amid concerns the central bank will likely keep interest rates higher for longer in order to tame inflation.
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However, the devil is in the details, says Daryl Patten, senior vice president and financial advisor at asset management firm Fort Pitt Capital. While the jobs report looks strong on the surface, Patten says it’s important to take a closer look. The vast majority of job growth, he noted, came from the service sector, while construction and manufacturing were the two areas that saw the slowest pace of job gains.
“This supports our thinking about a shift in overall consumer spending from goods to services and is in line with yesterday’s ISM manufacturing report,” Patten says. “As the pandemic ravaged 2020, consumer spending shifted away from services (think travel, restaurants, etc.) in favor of real goods. As interest rates rise, we will see a reversal of those costs back into services.”
This thought could be what brought the action to the session bars. Despite being strictly lower in the open, the technology-heavy Nasdaq composite ended the day down 0.2% at 11,463 and the broadest S&P 500 Index was down 0.1% to 4,071. The blue-chip Dow Jones Industrial Average swing higher at the close, ending up 0.1% at 34,429.
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