(Bloomberg) — Stocks struggled to gain traction after hitting multiple all-time highs, with traders gearing up for the all-important jobs report that will help determine whether the Federal Reserve will cut rates in December.
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Equities wavered, following a rally that drove the S&P 500 to its 56th record this year. Treasury yields edged up slightly, with the market standing at key technical levels. President-elect Donald Trump’s pick of a crypto proponent to be the next head of the US securities regulator lifted Bitcoin to $100,000.
Just 24 hours ahead of the US payrolls report, data showed jobless claims rose to a one-month high during a week that included the Thanksgiving holiday. Economists estimate that nonfarm payrolls rose by 215,000 in November, rebounding after two hurricanes and a now-ended strike lowered October numbers. The jobless rate is seen unchanged at 4.1%.
“We’ll get a fuller picture from tomorrow’s monthly jobs report, but for now, the story continues to be a labor market that occasionally appears to bend, but avoids breaking,” said Chris Larkin at E*Trade from Morgan Stanley.
The S&P 500 was little changed. The Nasdaq 100 fell 0.1%. The Dow Jones Industrial Average slid 0.2%. Tesla Inc. rallied as Bank of America Corp. raised its price target. American Airlines Group Inc. and Southwest Airlines Co. climbed amid bullish outlooks. Applied Materials Inc. sank on a downgrade.
Treasury 10-year yields rose two basis points to 4.2%. A measure of France’s bond risk fell amid hopes lawmakers will strike a deal on next year’s budget sooner than many investors had expected, ending months of political impasse that has weighed on markets.
Oil endured a choppy session after OPEC+ announced plans to defer supply increases for three months but still add barrels from April to a market that’s expected to be oversupplied.
A survey conducted by 22V Research shows that 45% of investors believe Friday’s US payrolls data will be “mixed/negligible,” 32% believe it will be “risk-off,” and 23% “risk-on.”
“Investors are paying the most attention to payrolls again, but attention to wages has been increasing,” said Dennis DeBusschere at 22V. “Our take is service inflation looks to be settling at a pace above what is consistent with the Fed hitting its 2% inflation target over time. That may indicate labor market inflation pressures, which makes wage inflation data more important to monitor.”
To Andrew Brenner at NatAlliance Securities, Wall Street expectations are off the charts, and even the so-called whisper number is still very high.
“The 10-year yield is having a war with the 4.16 resistance and the 200 day moving average of 4.21,” Brenner noted, “If the 10 year goes through 4.16 tomorrow, then that will flip the Commodity Trading Advisors (CTAs) from short to long.”
Leading indicators point to a roughly as-expected reading in the payrolls report, with headline job growth potentially coming in somewhere in the 180,000-240,000 range, albeit with a big band of uncertainty given the current global backdrop, according to Matthew Weller at Forex.com and City Index.
“With an interest rate cut largely priced in at this point, the risks may be skewed slightly toward a bounce in the greenback if the jobs report revives the odds of a December pause,” Weller noted. “Though any market moves might be limited as the Fed’s policy decision is more around when rather than if it will pause rate cuts in the near future.”
One of the more popular trades within the fixed income markets this year has been the expectation of a steeper Treasury yield curve, with investors either expecting the short-end of the curve to fall and/or the back end to either stay put or even rise, according to Lawrence Gillum at LPL Financial.
However, stronger economic data has priced out the need for the Fed to aggressively cut short-term interest rates and now with recent commentary suggesting the Fed is in no hurry to cut rates, the front end of the curve has stalled at current levels and has kept the long end range-bound.
“If the Fed pauses too long or if they suggest the ‘neutral’ rate is higher than market expectations, markets may become concerned about the deleterious impact of high interest rates, which may actually cause long-term interest rates to fall, further tightening the spread between short and long-term interest rates,” he noted.
On average, the 10-year yield is higher than the fed funds rate by about 1%, so the yield curve will eventually go back to its upward sloping shape but that may not happen until the middle of next year, Gillum concluded.
Since the US central bank began easing rates in mid-September, two-, five- and 10-year Treasury yields have risen from around 3.5% to above 4%. The selloff has been accompanied by traders reducing the chances of sweeping cuts amid resilient economic data, with a little more than three quarter-percentage point cuts over the coming 12 months to around 3.7%.
A string of stronger-than-estimated data points sent the US version of Citigroup’s Economic Surprise Index soaring this year. The gauge measures the difference between actual releases and analyst expectations.
“While the 10-year US Treasury yield may see upward pressure from economic strength and potential policy impacts, yields on shorter-dated notes could still fall, although perhaps not as far as in Europe, as policymakers there have more work to do,” according to Janus Henderson Investors’ 2025 market outlook.
Janus also noted that the global economy is somewhat late in the cycle — warranting caution — yet the data continue to defy expectations, and growth is steady.
What does this mean for investors?
“At the highest level, the combination of rate cuts and other potential accommodative policy in the U.S. and stimulus in China should lend support to the global economy. Still, there are forces at play that make it imperative to apply caution when adding risk,” Janus said. “Broadly speaking, markets have been quick to price in the cycle’s extension, leaving valuations vulnerable to downgrades if risks increase.”
Corporate Highlights:
Dollar General Inc. narrowed its full-year guidance, underscoring the discounter’s challenges in attracting bargain-hunting shoppers who have seen their purchasing power eroded by higher prices.
Kroger Co. narrowed its annual outlook and reiterated confidence in its acquisition of rival Albertsons Cos. being approved by regulators.
Walt Disney Co. raised its annual dividend by 33% to $1 a share, another sign that a turnaround plan put in place two years ago is paying off.
Toronto-Dominion Bank suspended its medium-term financial targets amid a review of company strategy as the incoming chief executive officer seeks to move the lender past a historic money-laundering settlement with US authorities.
Bank of Montreal missed estimates after once again setting aside much more money than expected to cover potential loan losses.
Canadian Imperial Bank of Commerce beat estimates after another quarter of stronger-than-expected credit quality, with its US business showing signs that it’s getting over its problems in commercial real estate.
Key events this week:
Some of the main moves in markets:
Stocks
The S&P 500 was little changed as of 10:57 a.m. New York time
The Nasdaq 100 fell 0.1%
The Dow Jones Industrial Average fell 0.2%
The Stoxx Europe 600 rose 0.3%
The MSCI World Index was little changed
Currencies
The Bloomberg Dollar Spot Index fell 0.3%
The euro rose 0.6% to $1.0575
The British pound rose 0.5% to $1.2761
The Japanese yen rose 0.2% to 150.22 per dollar
Cryptocurrencies
Bitcoin rose 3.7% to $101,488.01
Ether rose 1.3% to $3,893.66
Bonds
The yield on 10-year Treasuries advanced two basis points to 4.20%
Germany’s 10-year yield advanced five basis points to 2.11%
Britain’s 10-year yield advanced two basis points to 4.27%
Commodities
West Texas Intermediate crude rose 0.5% to $68.90 a barrel
Spot gold fell 0.3% to $2,641.88 an ounce
This story was produced with the assistance of Bloomberg Automation.
