The stock market can't go up every week, and it will have some work to do today if it is going to escape this week with a gain. Through Thursday, the S&P 500 is down 0.8% and that has a lot to do with the information technology sector, which is down 2.6%.
Other notable laggards have included the energy sector (-2.3%) and the consumer discretionary sector (-1.2%), yet it is the heavily-weighted information technology sector that has been the main drag. Really, though, it shouldn't be any surprise given how strong it has been. It was due for some profit taking and that is primarily what this week's downturn has been all about.
Trade concerns have hovered as an excuse to take some money off the table, too, yet the outperformance of the industrials sector (+0.9%) and the Dow Jones Industrial Average (+0.1%) has made it clear that the trade excuse has been largely just that.
On a related note, this abbreviated work week is ending much like it began. The U.S. and Canada have still not worked out a NAFTA agreement and the prospect of the Trump Administration imposing tariffs on $200 billion worth of Chinese goods is still hanging over the market.
One new trade twist is the speculation borne out of an interview the president did with The Wall Street Journal that Japan might be next up in President Trump's trade fight.
Time will tell soon enough, yet trade dealings are at least a constant source of market conversation even if they aren't necessarily a constant source of selling interest.
Today is no different, although the August employment report is going to provide some conversation competition because it contained a few surprises.
One surprise was the drop in the labor force participation to 62.7% from 62.9%. The biggest surprise, however, was the 0.4% increase in average hourly earnings. That pushed the year-over-year rate to 2.9%, which is the highest since May 2009.
The wage growth should be regarded as good news, yet the key takeaway for the market is that it will keep the Fed in a tightening gear, which most likely includes two more rate hikes before the year is done.
The notable headlines from the Employment Situation Report are as follows:
- August nonfarm payrolls increased by 201,000 (Briefing.com consensus 187,000). Over the past three months, job gains have averaged 185,000 per month
- July nonfarm payrolls revised to 147,000 from 157,000
- June nonfarm payrolls revised to 208,000 from 248,000
- August private sector payrolls increased by 204,000 (Briefing.com consensus 175,000)
- July private sector payrolls revised to 153,000 from 170,000
- June private sector payrolls revised to 192,000 from 234,000
- August unemployment rate was 3.9% (Briefing.com consensus 3.9%) versus 3.9% in July
- Persons unemployed for 27 weeks or more accounted for 21.5% of the unemployed versus 22.7% in July
- The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.4%, versus 7.5% in July
- August average hourly earnings were up 0.4% (Briefing.com consensus +0.2%), after increasing 0.3% in July
- Over the last 12 months, average hourly earnings have risen 2.9%, versus 2.7% for the 12 months ending in July
- The average workweek in August was 34.5 hours (Briefing.com consensus 34.5) versus 34.5 hours in July
- August manufacturing workweek was unchanged at 41.0 hours
- Factory overtime was unchanged at 3.5 hours
- The labor force participation rate was 62.7% in August, versus 62.9% in July
The S&P futures, which were down five points just ahead of the employment report, are now down 11 points and trading 0.4% below fair value. The Nasdaq 100 futures are down 48 points and the Dow Jones Industrial Average futures are down 97 points.
Today's start, then, is going to be negative, as the knee-jerk spin on the employment report is that good news for the economy could be bad news for the market in the form of higher interest rates.
The 2-yr note yield, which is most sensitive to changes in the fed funds rate, is up five basis points to 2.68% while the yield on the 10-yr note is up three basis points to 2.91% in a curve-flattening trade.