Stocks Fall as Labor Market Strength Keeps an Aggressive Fed in Play

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.79%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.65%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.04%.  

Stocks this morning are moderately lower as bond yields jumped on concern the Fed may have to keep monetary policy tighter for longer after this morning’s stronger-than-expected U.S. Nov payroll report.  Stocks maintained their losses on comments from Richmond Fed President Barkin, who said strength in the U.S. labor market could keep upward pressure on inflation.  The 10-year T-note yield is up sharply by +9.3 bp at 3.598%.

Weakness in chip stocks today is weighing on technology stocks.  Marvell Technology down more than -6% after reporting weaker-than-expected Q3 revenue and forecasting Q4 revenue that was below consensus.

U.S. Nov nonfarm payrolls rose +263,000, stronger than expectations of +200,000. The Nov unemployment rate was unchanged at 3.7%, right on expectations.

U.S Nov average hourly earnings eased to +5.1% y/y from +5.6%  y/y in Oct but were still higher than expectations of +4.6% y/y.

Richmond Fed President Barkin said the U.S. "labor supply looks like it will remain constrained,"

which could keep upward pressure on inflation and require firms to spend more to attract and keep their workers.

In a note to clients today, Bank of America said investor optimism around a cooling labor market and a Federal Reserve pivot is overdone and recommends "selling risk rallies in stocks from here" as unemployment would replace inflation as the main worry in 2023.

Today’s stock movers…

Chip stocks are under pressure today after Marvell Technology reported Q3 net revenue of $1.54 billion, below the consensus of $1.56 billion, and forecast Q4 net revenue forecast of $1.33 billion-$1.43 billion, well below the consensus of $1.62 billion.  Marvell Technology (MRVL) is down more than -6%.  Also, Intel (INTC) is down more than -3% to lead losers in the Dow Jones Industrials.  In addition, Nvidia (NVDA) and Analog Devices (ADI) are down more than -3%.  Finally, Broadcom (AVGO), Advanced Micro Devices (AMD), NXP Semiconductor (NXPI), and Microchip Technology (MCHP) are down more than -2%. 

Zscaler (ZS) is down more than -9% to lead losers in the Nasdaq 100 after forecasting 2023 calculated billings of $1.93 billion-$1.94 billion, the mid-point below the consensus of $1.94 billion. 

Veeva Systems (VEEV) is down more than -6% after forecasting Q4 revenue of $551 million-$553 million, well below the consensus of $560.6 million.

DoorDash (DASH) is down more than -3% after RBC Capital Markets downgraded the stock to sector perform from outperform. 

Blackstone (BX) is down more than -3% after Barclays downgraded the stock to equal weight from overweight.

Asana (ASAN) is down more than -11% after cutting its 2023 revenue forecast to $541 million-$543 million from a prior estimate of $544 million-$546 million, weaker than the consensus of $545.6 million. 

Defense contractors and weapons builders are climbing today on optimism a compromise defense policy bill will pass Congress that will boost national security spending by about $45 billion more than President Biden proposed.  Huntington Ingalls (HII) is up more than +2%.  Also, Lockheed Martin (LMT) and Northrop Grumman (NOC) are up more than +1%.

U.S.-listed Chinese stocks are moving higher as an easing of Covid restrictions in China has improved market sentiment toward Chinese technology stocks.  Alibaba Group Holding (BABA) is up more than +5%.  Also, Baidu (BIDU) is up more than +4%.  In addition, JD.com (JD), Pinduduo (PDD), and NetEase (NTES) are up more than +3%

UiPath (PATH) is up more than +12% after reporting Q3 total revenue of $262.7 million, well above the consensus of $246.5 million. 

Across the markets…

March 10-year T-notes (ZNH23) today are down -23 ticks, and the 10-year T-note yield is up +9.3 bp at 3.598%.  T-note prices fell on a stronger-than-expected U.S Nov payrolls report.  Also, comments today from Richmond Fed President Barkin weighed on T-note prices when he said constraints in the U.S. labor market could keep upward pressure on inflation. 

The dollar index (DXY00) this morning is up by +0.33%.  The dollar today recovered from a 5-month low and is moderately higher.  A stronger-than-expected U.S. Nov payroll report pushed bond yields and the dollar higher today.  Also, the weakness in stocks today has boosted the liquidity demand for the dollar. In addition, hawkish comments today from Richmond Fed President Barkin were positive for the dollar.

EUR/USD (^EURUSD) today is down -0.39%.  The euro today fell back from a new 5-month high and turned lower after the dollar surged on a stronger-than-expected U.S Nov payroll report. EUR/USD today initially climbed to a 5-month high after today’s economic news showed an easing of Eurozone producer price pressure after Eurozone Oct PPI posted its slowest pace of increase in 9 months. 

German trade data was bearish for EUR/USD after Oct exports fell -0.6% m/m, weaker than expectations of -0.2% m/m.  Likewise, German Oct imports fell -3.7% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 9 months.

Eurozone price data was weaker than expected.  The Eurozone Oct PPI rose +30.8% y/y, weaker than expectations of +31.7% y/y and the slowest pace of increase in 9 months.  Also, the German Oct import price index rose +23.5% y/y, falling back from the +29.8% y/y gain in Sep and the slowest pace of increase in a year.

USD/JPY (^USDJPY) this morning is up by +0.12%.  The yen today fell back from a 3-1/2 month high and is slightly lower as a surge in T-note yields undercut the yen.  The yen today initially moved higher on positive carry-over from Thursday on speculation the BOJ could review its ultra-loose policies after BOJ board member Tamura said the BOJ should conduct a policy assessment and the right moment for it could come soon.

February gold (GCG3) this morning is down -19.2 (-1.06%), and March silver (SIH23) is down -0.106 (-0.46%).  Precious metals prices this morning erased early gains and are moderately lower, as gold fell back from a 3-1/2 month high and silver retreated from a 7-month high. A rebound in the dollar index from a 5-month low today is weighing on metals prices.  Also, metals are under pressure after today’s stronger-than-expected U.S. Nov payroll report may keep the Fed aggressively raising interest rates. Gold prices are also falling today from higher global government bond yields.   

• If You Like Plant-Based Food Stocks, It’s a Case of Buy This, Not That
• Disney Put Options Signal Major Upside for Value Investors
• Markets Today: Stocks Slump as Hot Jobs Report Boosts Bond Yields
• Naked Put Screener Results For December 2nd