US stocks remained down for the week as the new labor report came in hot and failed to offer any rationale for the Federal Reserve to moderate its hawkish fiscal policy as it battles a persistently resilient inflation in US consumer prices.
The S&P 500 was up 1.4% on Friday, as the Dow Jones Industrial Average rose 400 points for a 1.3% gain. The Nasdaq Composite was up similarly, however all three major indexes were still down for the week. For the Dow, it was the first time in five weeks it finished down for a week.
The Labor Department reported that the US economy added 261,000 jobs in October, as it upwardly revised September’s reading from the initially reported 263,000 to 315,000. Economists were expecting a gain of 195,000 for October according to Bloomberg’s consensus estimates. The unemployment rate crept up to 3.7%.
Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office said of the report, “Today’s stronger than expected report illustrates the difficult task that still lies ahead for the Fed wrestling a resilient labor market and sticky inflation. While the number may be disappointing for investors hoping for a dovish Fed sooner rather than later, keep in mind it was the lowest reading in nearly two years, so there could be signs that the market is slowing.”
Investors had been hoping that any signs of a cooling labor market might give the Federal Reserve reason to slow its pace of interest rate hikes as it tries to cool the economy. However in his statements Wednesday, Fed Chair Jerome Powell said that small moderations in the data would not be enough to trigger a pause in their pace of increases, since at this point as the labor market is still historically tight.
After delivering a fourth consecutive 75 basis point rate hike on Wednesday, Powell had said, “Although job vacancies have moved below their highs and the pace of job gains has slowed from earlier in the year, the labor market continues to be out of balance, with demand substantially exceeding the supply of available workers.”
Payroll increases averaged 372,000 per month in the third quarter of this year. The most reliable measure of the US labor market, weekly jobless claims, are coming in historically low as well, at 217,000 this week.
In a note, DataTrek’s Nicholas Colas said, “Initial claims are not increasing one bit. Simply put, there is still no sign that neither aggressive Fed monetary policy nor the tighter financial conditions that it has brought is yet hitting U.S. labor markets.”
While concerns over the Federal Reserve’s path have dominated the attention of investors, corporate earnings have continued to roll in this week. Block (SQ) shares surged 11% after the company’s report beat estimates due to its Cash App and Square payment offerings overperforming.
Paypal meanwhile fell almost 2% after the company slashed its revenue forecast to 8.5% from its prior estimate of 18%, even though earnings were strong, beating estimates.
Twilio (TWLO) plunged 35% after the cloud communications firm missed earnings estimates and softened its guidance going forward.
Alibaba led a strong rally in Chinese stocks, rising 7% as rumors spread China may abandon its zero-Covid policy going forward and end the continual lockdowns which have been continually stalling China’s return to the global economy.
