S&P 500 dips, but 200-DMA shows its mettle

S&P 500 DIPS, BUT 200-DMA SHOWS ITS METTLE (1605 EST/2105 GMT)

The S&P 500 SPX fell on Friday, although major indexes recovered from their lowest levels, as the November payrolls report fueled expectations the Federal Reserve would maintain its path of interest rate hikes to combat inflation.

At the open, the S&P 500 broke below its 200-day moving average (DMA), which was around 4,046. The benchmark index then fell as low as 4,026.63 in the first minute of the session. That marked the low of the day, however, and the SPX then mounted recovery.

It finished at around 4,071, down just over 0.1% on the day, and scored its third-straight close above the 200-DMA.

Still, the resistance line from the January high, which was around 4,100 on Friday, continues to cap strength. The high for the day was 4,080.48.

For the week, the SPX ended up by 1.1%, the DJI DJI finished 0.2% higher, while the Nasdaq IXIC gained 2.1%.

Here is Friday's closing snapshot:

(Terence Gabriel)

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GLOBAL VALUE STOCKS STILL MORE ATTRACTIVE THAN GROWTH (1330 EST/1830 GMT)

Mark Haefele, chief investment officer at UBS Global Wealth Management, writes in a research note Friday that global value stocks are still more attractive than growth, and points to energy as a preferred sector.

He also says he favors value-oriented equity markets in the U.K. and Australia over the United States.

"Inflation is showing signs of easing but is still well above central banks' targets," he says.

Value outperformance is associated with inflation above 3%, he writes, and inflation is likely to remain above that level until near the end of 2023.

Moreover, growth stocks remain expensive "in relative terms."

"Although growth stocks have clearly fallen in absolute terms, their valuations remain unattractive," he writes, citing price-to-earnings ratios. He adds that while both value and growth earnings estimates have come down this year, value appears to be holding up better.

"With central bank policymakers remaining on the hiking path, we believe value outperformance should continue amid elevated rates. In fact, in the 12 months following the Federal Reserve's last rate hike in a cycle, value has historically outperformed growth by an average of 4 percentage points."

(Caroline Valetkevitch)

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BULLS DIP TO A 6-WEEK LOW -AAII (1220 EST/1720 GMT)

Individual investor optimism over the short-term direction of the U.S. stock market declined to a six-week low in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, neutral sentiment gained for the second straight week, while pessimism hovered around the same level.

AAII noted that most of this week’s results were tabulated before Wednesday's monetary policy remarks by Fed-Chair Powell were made.

In any event, AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, dipped by 4.4 percentage points to 24.5%. Optimism was last lower on Oct. 20, 2022 (22.6%). Bullish sentiment remains below its historical average of 37.5% for the 48th consecutive week.

Bearish sentiment, or expectations that stock prices will fall over the next six months, edged up by 0.2 percentage points to 40.4%. Pessimism is above its historical average of 31.0% for the 51st time out of the past 54 weeks.

Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, rose by 4.2 percentage points to 35.1%. The increase puts neutral sentiment above its historical average of 31.5% for just the second time since the end of July.

With these changes, the bull-bear spread widened to –16.0 percentage points from -11.4 percentage points last week:

AAII said that "historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and the bull-bear spread."

(Terence Gabriel)

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NAUGHTY AND NICE: A JOBS REPORT DEEP DIVE (1145 EST/1645 GMT)

Like bad children on Christmas morning, market participants feverishly tore into the Labor Department's hotly-anticipated employment report to find a gift they didn't really like that much.

In the topsy-turvy reality of a hawkish Fed and signs of looming recession, the surprisingly strong data hints at the possibility that the end of the central bank's bombardment of interest rate hikes could be postponed, at least for now.

The U.S. economy added 263,000 jobs (USNFAR=ECI) in November, blasting past the 200,000 economists expected.

"This jobs report is another example of why the Fed is going to be fighting inflation for a much longer period than many currently expect," writes Chris Zaccarelli, chief investment advisor at Independent Advisor Alliance.

While the headline number represents a 7.4% monthly drop, that's compared with October's upward revision.

The report marks the 23rd straight month of payroll growth north of the 200,000 mark, and the 9th month over the last twelve that the actual number has beaten consensus.

The report's strength, in fact, would appear to bolster the case of a "soft landing," that the economy can withstand the worst the Fed can throw at it without dipping into recession.

It also appears to contradict the recent upward trend in jobless claims, spiking layoffs, and contraction in PMI employment data.

The unemployment rate (USUNR=ECI), for its part, held firm at 3.7%, as projected.

Below the topline, the most alarming element of the report is the unexpected wage growth acceleration.

Average hourly earnings surged by 0.6% last month - double the estimated increase - and by 5.1% year-over-year, 0.2 percentage points hotter than the upwardly-revised October reading.

This follows a month which saw an encouraging cool-down in all major inflation indicators, prompting investors to celebrate past-peak inflation and light at the end of the hawkish Fed tunnel.

And while financial markets still largely expect a smaller, 50 basis point interest rate hike at the conclusion of Powell & co's December policy meeting - The CME FedWatch tool shows that likelihood hovering in the low-70% range - the hot wage print raises the question of how high the terminal level of the Fed funds target rate will be.

Calling the wage print "disappointing," Peter Cardillo, chief market economist, Spartan capital securities adds that "it presents an increasing challenge for the Fed ... it adds a question mark as to what will happen thereafter, whether the terminal rate needs to be hiked."

The graphic below tracks wage growth and other indicators, and the troublesome gap that remains between these data and the central bank's average annual 2% inflation target. It should be noted that real wages are declining, or lagging consumer price growth:

Another irksome aspect of the data comes courtesy of labor market participation rate, which shaved off 0.1 of a ppt to 62.1%.

The metric "continues to move in the wrong direction and will keep competition for labor high until the economy inevitably rolls over sometime next year," says Cliff Hodge, chief investment officer of Cornerstone Wealth.

The participation rate has struggled to reclaim its pre-COVID level, even as job openings hit a record high while a softening economy and high inflation appear to be providing ample motivation for workers to come back from the sidelines.

"People are burning through excess savings so quickly ($2.5 trillion at its peak and now close to $1 trillion) that more and more people will need to go back to work," writes Bryce Doty, senior portfolio manager at Sit Investment Associates.

On the other hand, when workers leave the labor market the jobless rate typically goes down - they are no longer considered unemployed.

Note that with this report, the participation rate has notched its third consecutive decline.

The fact that unemployment stood pat at 3.7% in November - and ticked higher in October - suggests rising layoffs might be filling that gap:

Speaking of which, when distributed by duration of unemployment, another potential sign of weakness emerges.

Those who have been jobless for fewer than five weeks account for a slightly larger slice of the unemployment pie, and the percentage of workers unemployed for 27 weeks or longer jumped 11 basis points to more than one-fifth of the total.

This suggests an uptick in layoffs - a phenomenon seen in Thursday's Challenger Gray report - and it also suggests it's taking longer for jobless workers to find a new gig:

Also buried well below the headline is the jobless rate by race and ethnicity.

While White unemployment held its ground at 3.2%, joblessness among Asian, Hispanic and Black workers all inched lower, resulting in a narrowing of the White/Black unemployment gap to 2.5 percentage points. It's a gap that tends to grow in times of economic contraction:

Another morsel of interest: the so-called "real" unemployment rate, which includes those only marginally attached to the labor force, inched 0.1 of a ppt lower to 6.7%.

But the metric also includes those who are working part-time for economic reasons, and that number increased.

This suggests a possible uptick in part-time workers ahead of the holidays, which might have been offset by an increase of those actively seeking employment.

Regardless, it's a disconnect which might suggest the Labor Department's methodology might be slow to accommodate the new normal of a gig economy.

Wall Street, focusing the report's more worrisome aspects, and is lower. However, the main indexes are well off their early lows.

FANGs NNYFANG and small-caps RUT are green with materials leading S&P 500 SPX sector gainers.

Tech S5INFT and chips SOX are among the weaker groups.

(Stephen Culp)

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WALL STREET FALLS EARLY AS JOBS DATA DISAPPOINTS (1020 EST/1520 GMT)

Major U.S. stock indexes are down in early trading Friday, with data showing U.S. employers hired more workers than expected in November along above estimates wage growth.

The data disappointed investors who have been worried about aggressive interest rate hikes by the Federal Reserve, which has been trying to combat rising inflation.

All of the major S&P 500 SPX are lower in early trading, with information technology S5INFT leading the way down. Tech and growth shares have been more negatively affected by rising rates.

Also, the Nasdaq IXIC is underperforming the other two major indexes.

(Caroline Valetkevitch)

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U.S. STOCK FUTURES SLIDE ON HOT NFP DATA (0900 EST/1400 GMT)

U.S. equity index futures are sharply lower in the wake of the release of the latest data on jobs.

The November non-farm payroll headline jobs came in at 263k vs a 200k estimate. The unemployment rate was 3.7% vs a 3.7% estimate. Of note, wage data, both on a month-over-month and year-over-year basis, was hotter than expected:

According to the CME's FedWatch Tool (FEDWTACH), the probability of a 50 basis point rate hike at the December FOMC meeting has now fallen to about 72% from 77% before the numbers were released. There is now about a 28% chance of a 75 basis point move up from around 23% just before the data came out.

CME e-mini Nasdaq 100 futures NQ1! are leading U.S. equity index futures lower, sliding around 2%. They were just below flat just before the numbers came out.

All 11 S&P 500 sector SPDR ETFs are quoted down in premarket trade, with more growth-oriented groups such as communication services S5TELS and tech XLK taking the biggest hits.

CME e-mini S&P 500 futures ES1! are off more than 50 points suggesting the S&P 500 index SPX, which closed at 4,076.57 on Thursday, will break back below its 200-day moving average, which ended at 4,048.33 on Thursday, at the open. There is support at 4,006. The 100-DMA ended Thursday around 3,923.

Regarding the jobs data, Quincy Krosby, chief global strategist at LPL Financial, said:

"The market expected a weaker number, closer to consensus estimates. 263,000 jobs is obviously more than consensus. The Fed rate hikes have begun to soften the employment landscape; however, the economy remains resilient."

She added "This is not what the market wants to see at this point. We're still showing a slowing in the labor market, but it's not enough to satisfy the Fed and to satisfy the market."

Additionally, Krosby noted, "Wages climbed higher. This is not what the Fed wants to see. In fact, they want to see it pull back. Hourly wages are a major concern for the Fed. This and rents are two of the major focus (points) for the Fed."

Here is a premarket snapshot:

(Terence Gabriel, Caroline Valetkevitch)

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