The November jobs report dealt a hard blow to stocks today, with data from the Labor Department suggesting the Federal Reserve still has a long way to go in its efforts to slow the economy. Specifically, the U.S. added a much higher-than-expected 263,000 jobs in November, while the unemployment rate remained steady at 3.7% and average hourly earnings grew 5.1% year-over-year. Stocks initially sold off sharply on the news, but the end of the day wasn't nearly as bad as the beginning.
"Investors are focusing on persistent inflation and fears that the Federal Reserve's aggressive rate hiking and balance sheet reduction will spark a recession, so today's news that private-sector hourly earnings grew 0.6%, which easily blew past the expected increase of 0.3%, is a hurtful interception during what has been an impressive comeback late in the fourth quarter," says José Torres, senior economist at Interactive Brokers. "It is the third consecutive month of wage acceleration and comes just two days after Fed Chairman Jerome Powell implied that labor market weakness is required to tame decades-high inflation."
As such, the major market indexes suffered losses ranging from 0.9% to 1.6% at the start of the session amid worries the central bank will likely have to keep interest rates higher for longer in order to tame inflation.
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However, the devil is in the details, says Daryl Patten, senior vice president and financial advisor at asset management firm Fort Pitt Capital. While the jobs report appears strong on the surface, Patten says it's important to look more closely. The vast majority of job growth, he notes, came from the service sector, while construction and manufacturing were two areas that saw the slowest pace of job gains.
"This supports our thoughts of a shift in overall consumer spending from goods to services and is in line with yesterday's ISM manufacturing report," Patten says. "As the pandemic raged in 2020, consumer spending shifted away from services (think travel, restaurants, etc.) in favor of real goods. As interest rates rise, we're seeing a reversal of that spending back toward services."
This thinking could be what brought stocks off their session lows. Despite being sharply lower at the open, the tech-heavy Nasdaq Composite ended the day down 0.2% at 11,463 and the broader S&P 500 Index was off 0.1% at 4,071. The blue-chip Dow Jones Industrial Average swung higher at the close, ending up 0.1% at 34,429.
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