In my Yahoo Finance interview on Thursday with Midday Movers, I strongly suggested that the Friday morning October Jobs Report would support Fed action on rates in December. The data we received on Friday morning did deliver on that narrative in spades. Additionally, in a nod to a narrative that I have suggested would materialize in recent weeks, the financials outperformed the market very handsomely as a result. The October Jobs report was significantly stronger that consensus expectation coming in for the month with a jobs gain of 271K versus expectations of 185K. September and August were revised higher as well. The official unemployment rate now stands at 5%. Any move in rates, as we have discussed, is likely to be shallow, protracted, reactive and thoroughly data dependent.
Indices posted a mixed performance on Friday with the S&P 500 shedding a fractional 0.03% while the Dow Industrials and NASDAQ gained ground, 0.26% and 0.38% respectively. Volume rose on the NYSE by 7.01% and by 0.81% on the NASDAQ. Fueling the move higher for the Dow Industrials was the financial sector which gained 1.53% on the day as a direct result of investor expectations, that given the improving economic data in the form of jobs and recent speeches by Federal Reserve officials, the likelihood of a December liftoff has improved rather markedly. Even a marginal move in rates by the Fed will have a therapeutic impact on the NIM of banks and select financials.
However, it is important to keep in mind that a move of 25 bps in the Fed Funds rate is not going to provide the kind of lift that secures a positive revenue and earnings trend for those institutions struggling with more fundamental challenges. Another data point in the report that speaks to an increasing likelihood of rates moving in the December Fed meeting was the jump in the all important Average Hourly Earnings – which was roughly double consensus expectations for the month at 0.4%.
In a theme also touched upon on Thursday with Yahoo Finance, the U.S. dollar strengthened on Friday after the release of the jobs report forcing the Euro to trade to a 107 handle. WTI crude continues to find equilibrium in the $40-$50/Bbl range as rig counts have continued to drop to a cycle low and demand has continued to tick higher.
Earnings should provide plenty for investors to focus on. Earnings for the third quarter from chip manufactures, home builders, and software firms should garner the most attention.