Yields Decline Lifting Stocks after Disappointing Employment Report
Stocks continued to trade on the defensive for most of the week, starting most of the proprietary trading session in the black before moving lower during the afternoon. Most sectors were lower during the week with Healthcare and Financial leading the broader markets. Economic data, especially on the employment front, showed robust gains, but the strong showing was unable to buoy equity bourses. For the week the S&P 500 index closed up 0.6%, the Dow Industrial Average closed down 0.20%, and the Nasdaq 100 close up 1.03%.
Chinese economic data contrasted US releases coming in softer than expected showing that the world's second largest economy is stagnating. Inflation continues to be muted allowing the People Bank of Chinese (the Chinese Central Bank) to sit on the sidelines and allow the financial systems to slowly deleverage.
On Friday, the government released trade data which will likely reduce Q4 GDP prospects. China's December trade surplus came in smaller than expected. Exports rose 4.3% year over year vs. 12.7% in November, while imports rose 8.3% from 5.3%. Exports were lower and imports higher than expected, leading to a $25.6 billion surplus vs. forecast for $32.2 billion.
The earnings season kicked off on Thursday evening with Alcoa releasing its financial results for the Q4. Alcoa swung to a loss on one-time charges. The company reported a loss of $2.34 billion compared to a profit of $242 million a year earlier, due to a $1.72 billion charge related to two acquisitions made over ten years ago.
Adjusted earnings per share of $0.04 missed consensus and revenue fell 5.3% to $5.59 billion slightly beating forecasts. Alcoa's (NYSE:AA) results came after it said it would pay $384 million to the U.S. government to settle charges of bribery in Bahrain.
Economic data released during the week included Decembers ADP private payroll report. ADP reported that private payrolls increased 238,000 compared to the 200,000 expected by economists. November was revised higher by 14,000 jobs to 29,000 for the November series. The service sector was the largest contributor to the private payroll report; producing 170,000 jobs while the goods sector increased by 38,000. December was the third consecutive month of plus 200,000 jobs in the private sector.
On Thursday the Department of Labor released their weekly unemployment claims report. According to the Bureau of Labor statistics, initial jobless claims declined 15,000 to 330,000 better than the 5K drop to 340K expected by economists.
Friday's employment report surprised markets participants coming in at 74,000 jobs compared to the 200,000 expected by economists. The unemployment rate dropped to 6.7% versus the 7% reading for the November series. Private sectors jobs increased by 87,000 in December. The reduction in the unemployment rate came from a fall in the labor participation rate which declined to 62.8%, which is a new 36-year low. The average workweek declined to 34.4 from 34.5 in November, while average hourly earnings remained unchanged. Next week all eyes will be on earnings as the parade advances for the next few weeks.