The Week On Wall Street
Stocks ripped higher last week on a dramatic retreat in bond yields triggered by easing inflation and a slowing labor market. The Dow Jones Industrial Average jumped 5.07%, while the Standard & Poor’s 500 surged 5.85%. The Nasdaq Composite index rocketed 6.61% higher for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 3.12%.
Stocks jumped higher right from the start of the week, shaking off the prior week’s sell-off. The combination on Wednesday of the Fed’s decision to keep rates unchanged, which accompanied dovish comments from Fed Chair Powell, and a reassuring Treasury announcement on future bond sales, sparked a third straight day of gains. Slight employment gains and weak manufacturing data provided an additional impetus. The rally continued on Thursday following a sharp drop in bond yields that was driven, in part, by substantial productivity gains and decelerating wage growth. When Friday’s monthly employment report was lighter than forecast, yields pulled back further, and stocks added to their week’s gains.
Signs of Labor Cooling
Last week’s employment data showed potential for a cooling labor market after many months of confounding economists’ expectations. The first sign was a lower-than-expected growth in new private sector jobs in October, as reported by Automated Data Processing (ADP), which showed a gain of 113,000 new jobs versus a forecast of 130,000, while job openings were little changed. Initial and continuing jobless claims also rose, exceeding consensus estimates. On Friday, the government’s monthly employment report further confirmed a potentially cooling employment picture, showing an October slowdown in hiring (150,000 new jobs versus September’s revised gain of 297,000) and an uptick in the unemployment rate to 3.9%.5
This Week: Key Economic Data
Thursday: Jobless Claims.
Friday: Consumer Sentiment.
This Week: Notable Companies Reporting Earnings
Tuesday: D.R. Horton, Inc. (DHI), Gilead Sciences, Inc. (GILD), Air Products and Chemicals, Inc. (APD)
Wednesday: Occidental Petroleum Corporation (OXY), The Walt Disney Company (DIS)
Thursday: Becton, Dickinson and Company, Inc. (BDX).
Earnings continue to come in fairly strong even though there are signs the economy is beginning to cool. Of the 407 companies that have reported so far (81% of the S&P 500):
Overall, 82% are beating estimates, and those that “beat” are beating by a median of 7%. Of the 18% missing, those are missing by a median of -5%. On the top line, overall results are beating estimates by a median of 3% and missing by a median of -5%, and 60% of those reporting are beating estimates.
Make it a great week!