S&P 500 and Nasdaq Composite close at record highs on strong jobs report
01-Nov-19 16:15 ET
Dow +301.13 at 27347.40, Nasdaq +94.04 at 8386.40, S&P +29.35 at 3066.91
briefing.com
[BRIEFING.COM] The S&P 500 (+1.0%) and Nasdaq Composite (+1.1%) rallied to close the week at record highs after the October employment report exceeded expectations. The Dow Jones Industrial Average (+1.1%) performed similarly to its large-cap peers, while the small-cap Russell 2000 (+1.7%) outperformed.
Specifically, nonfarm payrolls increased by 128,000 (Briefing.com consensus 80,000), which was much more than expected when considering the GM strike. The figure followed upwards revisions for August and September, which could ensure the economy continues to expand, especially given the wage-based gains and low unemployment rate in the labor market.
This translated to a strong open for the stock market, which then rose to session highs after the ISM Manufacturing Index for October checked in at 48.3% (Briefing.com consensus 48.7%). This was its third straight monthly contraction, but the market's reaction reflected a better-than-feared perspective.
Investors embraced risk, with cyclical sectors leading the rally. The S&P 500 energy sector (+2.5%) outpaced the market, as oil prices ($56.21, +2.03, +3.8%) rose nearly 4% and Exxon Mobil (XOM 69.60, +2.03, +3.0%) beat earnings estimates. Next in line were the industrials (+2.2%), materials (+1.5%), and financials (+1.4%) sectors.
The defensive-oriented, and rate-sensitive, real estate (-0.3%) and utilities (-0.2%) sectors finished lower as the risk-on mindset contributed to higher Treasury yields. The 2-yr yield and the 10-yr yield increased four basis points each to 1.56% and 1.73%, respectively. The U.S. Dollar Index declined 0.2% to 97.20.
There was also some trade news that presumably cushioned the upbeat mood. China's Ministry of Commerce said both sides reached a consensus on core issues in a phone call involving senior negotiators. The USTR office followed up, saying that they are "in the process" of resolving outstanding issues, according to CNBC.
Apple (AAPL 255.82, +7.06) rose 2.8% and the trade-sensitive Philadelphia Semiconductor Index rose 2.3%. The latter was supercharged by Qorvo (QRVO 97.22, +16.36, +20.2%), an Apple supplier, beating top and bottom-line estimates and providing encouraging guidance.
Separately, Fitbit (FIT 7.14, +0.96, +15.5%) agreed to be acquired by Alphabet (GOOG 1273.74, +13.63, +1.1%) for $7.35/share in cash, or approximately $2.1 billion. Pinterest (PINS 20.86, -4.28, -17.0%) disappointed investors with its guidance.
Reviewing Friday's economic data, which featured the Employment Situation Report for October and the ISM Manufacturing Index for October:
- The October employment report was adversely impacted by the GM strike but otherwise strong absent the effects of that strike, which led to about 42,000 job losses for the motor vehicle and parts industry. October nonfarm payrolls increased by 128,000 (Briefing.com consensus 80,000). There were sizable upward revisions to nonfarm payrolls for August and September, fewer discouraged workers, and an uptick in the labor force participation rate.
- The key takeaway from the report is that it is not emblematic of an economy that is on the brink of a recession. On the contrary, it is emblematic of an economy that is expanding and looks poised to sustain the longest economic expansion on record thanks to a solid labor market and rising wages that are fuel for consumer spending.
- The ISM Manufacturing Index for October checked in at 48.3% (Briefing.com consensus 48.7%), up from 47.8% in September but still below the 50.0% level, which is the dividing line between expansion and contraction.
- The key takeaway from the report is that it points to a manufacturing sector that is still contracting, although at a slower pace than before which is why the report can be deemed better than feared.
- Total construction spending increased 0.5% m/m in September (Briefing.com consensus +0.1%) following a downwardly revised 0.3% decline (from +0.1%) in August.
- The key takeaway from the report is that private construction spending remains weak (down 4.6% yr/yr), saddled by a downturn in residential spending (down 3.6% yr/yr) that has stemmed in large part from a decline in new single-family construction (down 4.9% yr/yr).
Looking ahead, investors will receive the the Factory Orders report for September on Monday.
- Nasdaq Composite +26.4% YTD
- S&P 500 +22.3% YTD
- Russell 2000 +17.9% YTD
- Dow Jones Industrial Average +17.2% YTD
Market Snapshot
| Dow | 27347.40 | +301.13 | (1.11%) | | Nasdaq | 8386.40 | +94.04 | (1.13%) | | SP 500 | 3066.91 | +29.35 | (0.97%) | | 10-yr Note | -2/32 | 1.716 |
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| | NYSE | Adv 2122 | Dec 771 | Vol 854.9 mln | | Nasdaq | Adv 2388 | Dec 722 | Vol 2.1 bln |
Industry Watch
| Strong: Energy, Industrials, Materials, Financials |
| | Weak: Real Estate, Utilities, Consumer Staples |
Moving the Market
-- S&P 500 and Nasdaq Composite closed at record highs after October employment report exceeded expectations
-- ISM Manufacturing Index for October was better than feared; manufacturing sector still in contraction territory
-- Outperformance came within the cyclical sectors
-- The U.S. and China are reportedly working on resolving outstanding trade issues
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