Stocks were choppy after the December jobs report showed the labor market remains strong (good news), though this could keep interest rates higher for longer (bad news).
Ahead of the open, the Bureau of Labor Statistics said the U.S. added 216,000 new jobs in December, much higher than 175,000 economists were expecting. The unemployment rate remained unchanged at 3.7%, while wage growth accelerated at a faster monthly rate than what was seen in November.
Markets rallied hard at the end of 2023 on expectations the Federal Reserve will start cutting interest rates as soon as its March meeting, but today's data interrupts "the market's parade to rate cuts," says Douglas Porter, chief economist at BMO Capital Markets. "While there were downward revisions to earlier months, job growth is still in the 'no landing' camp, which is keeping wages bubbling."
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This, in turn, adds to inflationary pressures the Fed is trying to tamp down. Following today's jobs data, CME Group's FedWatch tool shows futures traders are now pricing in a 62% chance the Federal Reserve will cut interest rates by a quarter percentage point in March, down from 73% one week ago.
Analyst sets big free cash flow goal for Nvidia
In single-stock news, Nvidia (NVDA) gained 2.3% after BofA Securities analyst Vivek Arya maintained a Buy rating on the mega-cap stock and said it remains a top sector pick.
NVDA's dominance in generative AI (artificial intelligence) can potentially help the company bring in roughly $100 billion in free cash flow (FCF) over the next two years, the analyst writes in a note to clients. As a reminder, free cash flow is the money left over after a company has paid its expenses, interest on debt, taxes and long-term investments needed to grow its business.
"Of the roughly $100 billion FCF, we estimate only ~$30 to $35 billion could be deployed for buybacks, leaving a meaningful $65 to $70 billion in ammunition for new organic & inorganic growth initiatives," Arya says, adding that this free cash flow generation can help address uncertainty around the company's growth prospects.
Elsewhere, Peloton Interactive (PTON) continued to climb after the fitness company said Thursday morning it is teaming up with TikTok. The partnership will bring short-form fitness content to the social media platform . The consumer discretionary stock jumped 9.9% Friday, bringing its two-day gain to more than 25%.
As for the main indexes, the Dow Jones Industrial Average closed up 0.1% at 37,466, the S&P 500 gained 0.2% to 4,697, and the Nasdaq Composite added 0.1% to 14,524. Still, all three indexes snapped their nine-week winning streaks.
CPI, Q4 earnings season on deck
Looking to the upcoming week, there's plenty to keep investors on their toes. On the economic front, the December Consumer Price Index (CPI) is due out ahead of next Thursday's open.
Additionally, the start of fourth-quarter earnings season kicks off Friday with several big banks set to report. While the earnings recession officially ended in Q3, analysts are growing increasingly worried about Q4. According to John Butters, senior earnings analyst at FactSet Research Systems, the fourth-quarter bottom-up earnings per share estimate fell by 6.8% from September 30 to December 31.
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