Stocks just had their best month of the year, but the rally could lose steam depending on what a crucial labor market report shows.
The November jobs report, scheduled for release Friday, highlights a week of economic data that includes key updates on activity in the services sector as well as the latest readings on job openings and consumer sentiment.
The Federal Reserve will enter its quiet period ahead of its next meeting, which begins on Dec. 12.
On the earnings front, results from J.M. Smucker (SJM), GameStop (GME), Lululemon (LULU), Dollar General (DG), and Broadcom (AVGO) will highlight a week of quarterly reports.
Stocks entered the first full week of December after closing out their first winning month since July. In November, the Nasdaq Composite (^IXIC) soared 10.7%, while the S&P 500 (^GSPC) added 8.9% and the Dow Jones Industrial Average (^DJI) rose about 8.8%.
Investors will look for further signs of cooling in the labor market when the jobs report is released on Friday. A report that shows job growth but not excessively above expectations adds to the increasing sentiment that the Fed's rate hiking campaign could end in a "soft landing," where inflation returns to 2% without a major downturn in economic activity.
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
After a weaker-than-expected print in October, largely driven by the United Auto Workers strikes, economists project an increase in job additions in November.
The November jobs report is expected to show 200,000 nonfarm payroll jobs were added to the US economy last month with unemployment remaining flat at 3.9%, according to data from Bloomberg. In October, the US economy added 150,000 jobs while the unemployment rate hit its highest level since January 2022.
"We anticipate softening labor demand will remain a theme moving forward," Wells Fargo's team of economists led by Jay Bryson wrote in a note on Friday. "That said, the end to UAW and Hollywood actors' strikes looks apt to boost November’s payroll print by close to 45K. Furthermore, a relatively late survey week should help capture more holiday hiring than in prior years, supporting seasonally-adjusted gains. We estimate that employers added 230K payrolls over the month."
For investors, the print will be key in either bolstering or contradicting recent market sentiment that the Fed is done hiking interest rates and could even cut rates sooner than many expected.
The Fed attempted to temper those expectations on Friday.
"It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance or to speculate on when policy might ease," Fed Chair Jerome Powell said Friday in prepared remarks at Spelman College in Atlanta.
The comments initially shocked markets with stocks falling minutes after the speech began, but all three of the major averages eventually finished Friday's trading day in the green. Market expectations for Fed policy didn't budge much either.
As of Friday afternoon, markets had priced in about a 64% chance the Fed cuts rates by the end of its March meeting, up from a 21% chance just a week prior, per the CME FedWatch Tool.
"The jobs reports is very important, that's probably the most important thing we have on our calendar into the end of the year," eToro US investment analyst Callie Cox told Yahoo Finance. "And a continuation of the trends we've seen in the job market would be a good thing because that would show that the Fed is maintaining a healthy job market while getting inflation down.
"What you don't want to see is unemployment rising quickly and hiring slowing down quickly. You don't want to see any sudden moves."
With the Fed in its quiet period, economic data will likely be the key driver for stocks next week as corporate earnings season winds down. But a few reports could help investors gauge their appetite for risk in certain areas of the market.
On Wednesday, GameStop and C3.ai (AI) will report earnings. The two stocks have been popular momentum trades this year. GameStop recently rose over 20% in a single trading session. Meanwhile, C3.ai has ridden the tailwinds of AI hype and seen its stock rise roughly 175% this year.
Both of the unprofitable companies saw their stocks soar in November as investors shifted back to a risk-on mantra, buying up some of the names hit hardest during the fall sell-off.
Broadly, many strategists haven't sounded the alarm that the current market melt-up has been overbought.
"Despite growing expectations for a soft landing, we are still far from a market environment dominated by high conviction and euphoria," Bank of America's head of US equity and quantitative strategy Savita Subramanian wrote.
Weekly Calendar
Monday
Earnings: GitLab (GTLB)
Economic data: Factory Orders, October (-2.7% expected, 2.8% previously); Durable Goods Orders, October final (-5.4% expected, -5.4% previously)
Tuesday
Earnings: Asana (ASAN), Autozone (AZO), Box (BOX), Dave & Buster's (PLAY), Designer Brands (DBI), J.M. Smucker (SJM), MongoDB (MDB), Nio (NIO), Signet Jewelers (SIG), Stich Fix (SFIX), Toll Brothers (TOL)
Economic data: S&P Global US Services PMI, November, final (50.8 previously); S&P Global US Composite PMI, November, final (50.7 previously); ISM Services, November (52.5 expected, 51.8 previously); JOLTS Job Openings, October (9.38 million expected, 9.55 million previously);
Wednesday
Earnings: Campbell Soup (CPB), ChargePoint (CHPT), Chewy (CHWY), C3ai (AI), Duckhorn (NAPA), GameStop (GME), Lovesac (LOVE), Vera Bradley (VRA)
Economic data: MBA Mortgage Applications, week ending December 1 (+0.3% previously); ADP employment change, November (120,000 expected, 113,000 previously)
Thursday
Earnings: Broadcom (AVGO), DocuSign (DOCU), Dollar General (DG), Lululemon (LULU), RH (RH), Vail Resorts (VAIL)
Economic data: Challenger jobs cuts, year-over-year, November (+8.8% previously); Weekly initial jobless claims, December 2 (221,000 expected, 218,000 previously)
Friday
Earnings: No notable earnings
Economic data: Nonfarm payrolls, November (+200,000 expected, +150,000 previously); Unemployment rate, November (+3.9% expected, 3.9% previously); Average hourly earnings, month-over-month, November (+0.3% expected, +0.2% previously); Average hourly earnings, year-over-year, November (+4.0% expected, +4.1% previously); Average weekly hours worked, November (34.4 expected, 34.4 previously); Labor force participation rate, November (62.7% previously); U. of Mich. Consumer Sentiment, December preliminary (61.9 expected, 61.3 previously)
Josh Schafer is a reporter for Yahoo Finance.
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