Closing Stock Market Summary
The S&P 500 (+1.1%) and Dow Jones Industrial Average (+0.4%) set fresh record closing highs today. The Nasdaq Composite logged a 1.7% gain, settling near its high of the day. The A-D line was negative, though, at both the NYSE and at the Nasdaq, and the equal-weighted S&P 500 logged a 0.1% decline.
Big gains in shares of Meta Platforms (META 474.99, +80.21, +20.3%) and Amazon.com (AMZN 171.81, +12.53, +7.9%) following pleasing earnings news drove index level upside moves, along with strength in other mega caps like NVIDIA (NVDA 661.57, +31.30, +5.0%). The Vanguard Mega Cap Growth ETF (MGK) jumped 2.2%.
Even Apple (AAPL 185.85, -1.01, -0.5%) briefly turned positive when the market was at session highs after being down as much as 4% earlier today following relatively disappointing outlook for fiscal Q2 iPhone sales.
The negative bias under the index surface was related to this morning's release of the much stronger than expected Employment Situation Report for January. The report featured a big upside surprise in payroll growth that was accompanied by a larger than expected increase in average hourly earnings.
This report is not likely to persuade the FOMC to cut rates as soon, or as much, as the market had hoped. As a result, the fed funds futures market repriced the probability of a 25-basis points rate cut at the March FOMC meeting to 20.5% (from 38.0% yesterday and 47.6% one week ago) while the probability of a 25-basis points rate cut at the May FOMC meeting has been reduced to 74% (from 93.8% yesterday), according to the CME FedWatch Tool.
The jobs report sent Treasury yields higher, which contributed to the underlying negative bias in the stock market. The 10-yr note yield rose 17 basis points today, and fell 13 basis points this week, to 4.03%. The 2-yr note yield rose 19 basis points today, and declined two basis points this week to 4.38%.
The jump in rates weighed on the rate-sensitive S&P 500 real estate (-1.3%) and utilities (-1.8%) sectors, which saw the steepest declines among the five sectors to finish lower.
Meanwhile, the communication services sector jumped 4.7% thanks to the huge gain in META. The consumer discretionary (+2.5%) and information technology (+1.3%) sectors were right behind the communication services sector on the leaderboard today. The industrial (+0.7%), financial (+0.5%), and energy (+0.2%) sectors also registered gains.
- S&P 500: +4.0%
- Nasdaq Composite: +4.1%
- Dow Jones Industrial Average: +2.6%
- S&P Midcap 400: -0.5%
- Russell 2000: -3.3%
Reviewing today's economic data:
- The January employment report showed headlines for the key metrics -- nonfarm payrolls, private sector payrolls, the unemployment rate, and average hourly earnings -- that were stronger than expected (much stronger for the payrolls data). The report had a few quirks, too, namely a notable drop in the average workweek to 34.1 hours from 34.3 hours, benchmark revisions that showed nonfarm payroll employment in November and December combined 126,000 higher than previously reported, and updated population estimates that decreased the estimated size of the civilian noninstitutional population by 625,000 and the civilian labor force by 299,000 in December.
- The key takeaway, though, is that it is apt to be construed by the Fed as a report that, on balance, fits its current base case for seeing a March rate cut as unlikely.
- The final reading for the University of Michigan Consumer Sentiment Index for January came in at 79.0 (consensus 78.8), up from the preliminary reading of 78.8 and the final reading of 69.7 for December. In the same period a year ago, the index stood at 64.9. The January reading represents the highest level for the index since July 2021.
- The key takeaway from the report is that the increase in sentiment reflects an improved view of inflation and personal incomes that should bode well for consumer spending activity.
- Factory orders increased 0.2% month-over-month in December (consensus 0.3%) after increasing 2.6% in November. Excluding transportation, factory orders increased 0.4% on the heels of a 0.2% increase in November. Shipments of manufactured goods were flat following a 0.5% increase in November.
- The key takeaway from the report is the recognition that business spending continued to increase in December, which is a helpful consideration for the soft landing view.
Monday's economic calendar features:
- 9:45 ET: Final January S&P Global U.S. Services PMI (prior 51.4)
- 10:00 ET: January ISM Non-Manufacturing PMI (prior 50.5)