The stock market held onto most of the day’s gains coming from data showing signs of economic slowing and the December payroll numbers and wage growth data giving similar feedback. The data may make a case for the Fed to slow interest rate hikes.
The S&P 500 regained 1.8% after an early slide while the Nasdaq rose 1.9%. The Dow Jones Industrial Average rose 1.7% and the Russell 2000 climbed 2%. Volume on the NYSE and Nasdaq was higher vs. the same time on Thursday.
The major indexes are on track to post a modest gain for the week. The Dow reclaimed its 50-day moving average and 21-day exponential moving average. The S&P 500 is finding support at its 21-day line.
The tech-heavy Nasdaq 100-tracking Invesco QQQ trust ETF (QQQ) added 2%.
Crude oil rose 0.8% to $74.25 per barrel. The Energy Select Sector SPDR ETF (XLE) added 1.6%. Natural gas changed course and rose 2.8%, still trading under $4 per million British thermal units.
European stock markets were positive, with the German DAX up 1.2% and the Paris CAC 40 gaining 1.5%. The London FTSE 100 added 0.8% to close out the trading day.
The Innovator IBD 50 ETF (FFTY) lagged the major stock market indexes, gaining 1.3%.
Oil field services company Halliburton (HAL) rose 2.7% and broke out of a cup-with-handle base, hitting the 40.09 buy point.
Fellow homebuilder Lennar (LEN) rose 1.7% and broke out of a cup-with-handle base hitting the 95.34 buy point. The relative strength line hit a new high as indicated by the blue dot on the MarketSmith chart.
Investors should be aware that the current IBD outlook remains at “market in correction” in IBD’s market outlook, and it’s risky to buy in such an environment. Remember to wait for a confirmation of a new market uptrend before raising exposure to stocks.
ISM Services Report Shows Contraction
The December Institute for Supply Management services index dropped to 49.6 versus the 55.0 consensus, a level not hit since May 2020. A reading below 50 represents contraction, something the stock market is seeking as a path to slow rate hikes.
The ISM business activity report also took a dive, down 10 points to 54.7, with new orders also showing signs of weakening, pulling back to 45.2 from 56.0 in November. These data points indicate the economy is starting to slow, and they ease pressure on the Fed to raise rates.
Payroll Numbers Mixed
December nonfarm payrolls rose by 223,000, higher than the 200,000 estimate, but lower than the revised 256,000 additions in November, showing strength in the labor market. Private payrolls rose 220,000 versus the 175,000 consensus estimate, and more than November’s revised 202,000.
December’s drop in overall payrolls from November shows a slight cooling in the job market, and that’s what investors are looking for from the Fed’s interest rate hikes.
The unemployment rate dropped to 3.5%, lower than the 3.7% forecast, and vs. a revised 3.6% for November.
Month-over-month average hourly earnings rose 0.3%, lower than the 0.4% projected and unchanged from November’s revised number. The year-over-year rate increased by 4.6%, lower than the 5% forecast, showing that the Fed’s tactics are starting to take effect.
The labor participation rate was slightly higher than expected at 62.3% vs. 62.2%.
After the employment data came out, the 10-year Treasury note yield shed 14 basis points to 3.58%.
Odds for a 25-basis-point hike by the Federal Reserve at the February meeting stand at 75.2%. That would take the fed funds rate to the 4.5%-4.75% range. Meanwhile, 24.8% of traders are looking for a 50-basis-point hike, according to the CME Group FedWatch Tool.
Market Takes Big Step, These 9 Stocks Flash Buy Signals; Tesla’s China Price War
Stock Market: Tesla Price Cut Pulls Down The Group
Tesla (TSLA) rebounded and was up 0.4% after the EV maker cut prices of its Model 3 and Model Y cars by 6% to 13% on units for sale in China. Chinese demand has dropped for the vehicles, with Chinese December deliveries at 58,000 versus more than 100,000 in November.
Tesla says it was able to make the price reductions through engineering innovations and cost controls. The price reduction could help it regain market share lost against its competitors.
World Wrestling Entertainment (WWE) spiked over 20% on news that founder Vince McMahon looks to return to the company as executive chairman and sell the company.
Southwest Airlines (LUV) clawed back from morning losses and rose 2.6% despite news it expects to post a Q4 loss of $725 million to $825 million, following its flight cancellation fiasco around the holiday season. The loss comes from lost revenue, reimbursements to passengers and higher pay for employees.
Southwest canceled over 16,700 flights between Dec. 21 and Dec. 31, affecting millions of travelers. The airline is due to report Q4 earnings on Jan. 26.
Semiconductor test systems developer Aehr Test Systems (AEHR) soared over 35% after reporting better-than-expected EPS and sales after the market closed Thursday.
Gas and natural gas logistics company DCP Midstream (DCP) gained 6.6% on news that parent company Phillips 66 (PSX) said it would buy all the publicly held units, totaling around $3.8 billion. PSX was up 1.6% on the news.
Home retailer Bed Bath & Beyond (BBBY) dropped over 21% on top of yesterday’s nearly 30% plunge on news it may file for bankruptcy.
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