Live Markets: Wall Street closes lower as early rally fizzles

Applied Energetics

02/09/2022 21:29

* Nasdaq falls 1.31%, S&P 500 and Dow both slip 1.07%
    * Energy sector is sole gainer; comms services is biggest
loser
    * Crude up 0.5%, gold up 0.8%, dollar flat, bitcoin down 
    * U.S. 10-year Treasury yield falls to 3.19%

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markets.research@thomsonreuters.com 
    
    WALL STREET CLOSES LOWER AS EARLY RALLY FIZZLES (1620
ET/2020 GMT)
    Stocks retreated on Friday as they couldn't hold an early
rally following a jobs report that prompted hopes among some
investors that the Federal Reserve could soften its interest
rate hiking intentions. The market, already weakening softened
further after Russia's Gazprom unexpectedly scrapped the
reopening of a major gas pipeline to Germany.  urn:newsml:reuters.com:*:nL8N3093QC
    The highly anticipated August jobs report showed moderate
wage growth and a rise in the unemployment rate, suggesting the
labor market was starting to cool. The data also provided some
hope that the Fed could slow the economy without triggering a
recession.
    But not everyone was fully convinced by the jobs data,
especially going into a long weekend. And then the Russian
pipeline news caught everyone by surprise, said Marc Chandler,
chief market strategist at Bannockburn Global Forex.
    Nord Stream 1, which runs under the Baltic Sea, had been due
to resume operating at 0100 GMT on Saturday after a three-day
halt for maintenance.  urn:newsml:reuters.com:*:nL1N3091P3
    "The market maybe overreacted, but it tells you the
direction it really wants to go, where the conviction side is.
Conviction is still strong dollar, weak stocks," Chandler said.
    All 11 of the major S&P 500 sectors declined, with exception
of energy  .SPNY , which rose 1.81%. Communication services
 .SPLRCL  led decliners, falling 1.85%. Small caps  .RUT ,
semiconductors  .SOX  and Dow transports  .DJT  also fell. 
    Value stocks  .IVX  slid 0.87%, compared with a 1.29%
decline in growth shares  .IGX .
    And for the week, the S&P fell 3.28% while the Dow lost
2.99% and the Nasdaq shed 4.2% with all three indexes marking
their third weekly decline in a row.
    With trading volumes relatively quiet ahead of a holiday
weekend, the market can more easily rise or slide, as evidenced
by Thursday's rapid reversal to a higher close. 
    But Fed Chair Jerome Powell last week, at a meeting in 
Jackson Hole, made clear that slowing inflation to the Fed's 2%
target is U.S. central bank's No. 1 mission.
    "What Chair Powell emphatically drove home at Jackson Hole
is that getting inflation under control is the only goal and the
only thing the Fed cares about," said Zach Hill, head of
portfolio management at Horizon Investments in Charlotte, North
Carolina. "So there is no pivot and there will be no pivot."
    Marvin Loh, senior global macro strategist at State Street
argues that the possibility of a 2023 recession is not priced
into equities, though other asset classes, such as corporate
bonds, have been taking that view into consideration. 
    "They (corporate bonds) certainly are taking the recession
risk and the Fed message that if it needs to push the economy
into a recession to get to get inflation under control, it's
going to do that," Loh said.
    Here's snapshot of closing market prices: 
    

    (Herbert Lash, Chuck Mikolajczak)
    *****

    RED-HOT U.S. HOME PRICES STARTING TO COOL (1444 ET/1844 GMT)
    Recent data suggests price appreciation for homes is
starting to ebb, leading Goldman Sachs to predict 39% of U.S.
metropolitan areas will see price declines in 2023, while
nationwide values will barely budge next year.
    However, there's a large degree of variance among the 
metropolitan areas, Goldman said in a note on Thursday.
    U.S. home values appreciated by an 8.5% clip on an
annualized basis in July, compared with 15% in June and 19% in
May, Goldman said, citing data from Zillow.
    One-tenth of metros experienced month-over-month declines in
home values in July, mostly in the West and Mountain West
regions, leading Goldman to revise its forecasts for home price
appreciation (HPA), especially at the metro level.
    Goldman now predicts HPA of 10.7% over the course of 2022, a
minimal change compared with the 10.5% appreciation already seen
through June. For next year, Goldman anticipates a HPA of 0.65%.
    "While we think national home prices will likely avoid a
correction in 2023, we expect 39% of metropolitan areas to
experience price declines," Goldman said.
    
    (Herbert Lash)
    *****
    
    INVESTORS STAY DOWN IN THE DUMPS -AAII (1230 EDT/1630 GMT)
    Optimism about the short-term direction of the stock market
fell last week to an eight-week low, while pessimism rose to an
eight-week high, according to the AAII Sentiment Survey for the
week ended on Wednesday. 
    Bullish sentiment - the expectation stock prices will rise
in  the next six months - dropped 5.8 percentage points to
21.9%, below its historical average of 38.0% for the 41st
straight week, according to AAII. 
    This puts optimism back at an unusually low level, AAII
said.
    Neutral sentiment - the expectation stock prices will stay 
unchanged in the next six months - fell 2.2 percentage points to
27.7%, below its historical average of 31.5% for the 17th time
in 19 weeks.
    Meanwhile bearish sentiment - the expectation stock prices
will fall in the next six months - jumped 8.0 percentage points
to 50.4%, above its historical average of 30.5% for the 40th
time out of the past 41 weeks and at an "unusually high level
for the 25th time out of the last 33 weeks."
    According to AAII, the breakpoint between typical and
unusually high readings is at 40.5%.
    Meanwhile, the bull-bear spread - bullish sentiment minus
bearish sentiment - is at –28.5%, an unusually low level for the
26th time in 32 weeks with the breakpoint between typical and
unusually low readings at –10.9%. 
    The bull-bear spread has tied for its second-longest streak
of negative readings, according to AAII, as sentiment has
remained with the bears for the 22nd straight week.
    This is likely because host of worries including continued
stock index volatility, high inflation, corporate earnings and
"increased chatter about the possibility of a recession" are
weighing on investors short-term expectations. Also on their
minds are monetary policy, politics and the Ukraine war, AAII
said.
    However, it sees historical trends as a potential reason for
eventual optimism since the S&P 500  .SPX , in the past, has
realized above-average and above-median returns in the six- and
12-month periods after unusually low bull-bear spread readings.
    The sentiment survey, which runs weekly from midnight
Thursdays to midnight on Wednesdays, has asked AAII members
since July 1987 about what direction they expect stock prices to
go in the next six months.
    
    (Sinéad Carew)
     *****    
    
STOXX JUMPS BY MOST SINCE JUNE, STILL ENDS WITH WEEKLY LOSS
(1148 ET/1548 GMT)
    European shares jumped by the most since June 24 after what
has been described as a "goldilocks" U.S. jobs report, but
shares still ended the week lower as expected aggressive ECB
tightening and uncertainty over gas supplies weighed. 
    The pan-European STOXX 600  .STOXX  ended the session up
2.0% following the jobs report and as Reuters reported that
Gazprom is set to resume gas flows through the Nord Stream 1
pipeline, as planned, after maintenance is completed tomorrow.
 urn:newsml:reuters.com:*:nL1N30911Y
    The U.S. added more jobs than expected in August, but
moderate wage growth and a rise in the unemployment rate to 3.7%
might ease the pressure on the Fed to deliver a third
consecutive 75 basis point rate hike this month.  urn:newsml:reuters.com:*:nL1N3082XU
    "The jump in unemployment and lower-than-expected wage
growth figure did help ease market concerns," says Joshua
Mahony, senior market analyst at online trading platform IG.
    Regional bourses all rallied with Germany's DAX  .GDAXI  up
over 3.3% for its biggest daily gain since March 16. 
    Britain's FTSE 100  .FTSE  gained 1.9%, while the
domestically focused FTSE 250  .FTMC  snapped a nine-day losing
streak, jumping just shy of 2%. 
    Even with today's rally, the STOXX 600 still ended the week
down by 2.4%, its third consecutive weekly loss, as markets
raised their bets on a 75 basis point rate rise from the ECB
next week following hawkish commentary from officials and
higher-than-foreast euro zone CPI. 
    
    (Samuel Indyk)
    *****

    
HITTING THE FED BULL'S EYE: A JOBS REPORT DEEP-DIVE (1130
ET/1530 GMT)
The Labor Department did market participants a solid on Friday,
delivering an employment report that struck a fine balance
between providing evidence that the Fed's hawkish monetary
policy is having the desired cooling effect, along with
reassurances that the central bank so far doesn't appear to have
cooled the economy into contraction.    
    The U.S. workforce grew by 315,000 last month  USNFAR=ECI ,
landing just north of the 300,000 consensus and marking a 40.1%
deceleration from July.  urn:newsml:reuters.com:*:nL1N3082XU
    That deceleration is - perhaps counterintuitively - good
news for investors scanning the skies for any sign the Federal
Reserve might ease its foot off the policy-tightening gas pedal.
    It comes on the heels of last week's dire warnings from Fed
Chair Jerome Powell that an economic slowdown and rising
joblessness could be lurking in the wings as central bank wages
its ongoing war against inflation.
    "This report indicates the Fed is going to raise interest
rates by half a percentage point this month, the reason being is
that wage inflation seems to have peaked," said Peter Cardillo,
chief market economist at Spartan Capital Securities in New
York. "The jobs market is heading for a real cooling-off
period." 
    The markets agree. In the report's wake, financial markets
are pricing in a 58% probability of another 75 basis point rate
hike in September according to CME's FedWatch tool, down from
70% before the report was released. 
    On a basic level, investors don't like surprises, and
generally prefer major data to land close to expectations, as
this one did.
    Perhaps the most welcome piece of data was a cool-down in
wage inflation, which inched down 0.2 percentage point to 0.3%
on a monthly basis, while holding steady at 5.2% year-on-year.
    "That to me is what the Fed wants to see," says Kristina
Hooper, chief global market strategist at Invesco. "I would
expect to see wage growth continue to moderate from here.
    "I've always been of the opinion that the Fed will hike by
50 bps," Hooper adds. "I think it will change some of the minds
that were expecting 75 basis points later in September."
    Even so, as shown in the graphic below, while inflation
might have peaked all major indicators are taking their sweet
time shuffling down that mountain toward Powell & Co's average
annual 2% target:
    The unemployment rate  USUNR=ECI  offered the report's
biggest surprise, unexpectedly jumping 0.2 percentage points to
3.7%.
    Economist saw the number holding firm at 3.5%.
    "Unemployment rose for the 'right' reasons as workers
continue to return to the labor market in search of jobs,"
tweeted Elise Gould, senior economist at the Economic Policy
Institute.
    Jamie Cox, managing partner at Harris Financial group
concurs.
    "Unemployment rose because the labor market wasn’t able to
absorb all of the people returning to workforce," Cox writes.
"And wage growth finally slowed down. These are the best signs
so far that a soft landing remains possible."
    Indeed, the rise in unemployment was at least partly
attributable to the labor market participation rate advancing to
62.4%. While that level remains below pre-pandemic levels, it's
a definite step in the right direction. The more workers return
from the sidelines, the looser the jobs market is likely to
become, which in turn should help cool worrisome wage inflation.
    "The increase in labor supply should help ease the tight
labor market and potentially moderate wage growth over the next
few months, a welcome sign from an inflationary perspective,"
says Peter Essele, head of portfolio management at Commonwealth
Financial Network. 
    Furthermore, unemployment distribution by duration hints
that the labor market is inching back to normalcy. 
    Workers who have been jobless for fewer than five weeks saw
their piece of the unemployment pie shrink to 36.7% of the
total, while increases in the middle range duration categories
suggested that it's taking a bit longer for out-of-work
Americans to land new gigs.
    It's yet another clue that the worker drought could be
easing, perhaps letting some steam out of wage inflation
pressures: 
    The report was not all rainbows and lollipops.
    Unemployment by race/ethnicity took a discouraging turn,
with Black joblessness gaining 0.4 percentage point to 6.4%,
while White unemployment added a mere 0.1 percentage point,
resulting in a widening White/Black jobless gap to 3.2
percentage points.
    Calling the Black joblessness a "troubling trend," Gould
notes that Black labor market participation and EPOPs
(employment to population ratio) have now dipped for three
straight months.
    Unemployment among Hispanics surged 0.6 percentage points to
4.5%.
    "The rise in Hispanic unemployment was accompanied by an
increase in participation and employment," Gould adds.
    Another downbeat aspect to Friday's report could be found in
the so-called "real" unemployment rate, which includes those
only marginally attached to the labor market and those working
part-time gigs for economic reasons.
    The latter saw their numbers grow by 4.8% to 4.075 million,
a troubling sign when the cost of living remains red hot.
    It's a necessary reminder that while signs of a cooling
economy offer hints that rate hikes are working, it also
translates to increased difficulties for many Americans.
    "One caution flag waving right now is the rise in part-time
workers who otherwise would be interested in full-time work,"
notes Jeffrey Roach, chief economist at LPL Financial. 
    Wall Street ate the report up.
    All three major U.S. stock indexes were bright green, but
remained on track to post losses on the week.
    (Stephen Culp, Sruthi Shankar)
    *****
    
    SOCIAL MEDIA'S MOST POPULAR STOCK? #TESLA (1022 ET/1422 GMT)
    Tesla Inc  TSLA.O  was found to be the most popular and
talked about stock on social media platforms including TikTok
and Instagram, according to a study by financial services
provider CMC Markets that analysed data from posts on sites
focused on equities.
    More than 45,400,000 views on TikTok, posted with the
hashtag #TeslaStock, and 28,391 posts hashtagged with the same. 
    Hot meme favourite AMC Entertainment Holdings Inc  AMC.N 
came in a close second, while third in place was Apple Inc
 AAPL.O . Amazon.com Inc  AMZN.O  and GameStop Corp  GME.N  also
made it to the top five list.  
    CMC Markets said these findings also show the sheer amount
of views one can get from posting about them and that many
people are turning to social media for their information on the
stock market and even tips and tricks for using it properly. 
    Meme stocks including AMC and GameStop were unsurprising to
be included on the list as they are considered as some of the
biggest pioneers of social media fuelled rises and falls. 
    
    (Shreyashi Sanyal)
    ***** 
       
    U.S. STOCK FUTURES JUMP AS JOBS REPORT KEEPS FED AT BAY
(0920 ET/1320 GMT)
    Equity futures jumped before the bell on Friday after the
non-farm payrolls report for August came in strong, but not
enough to force the Federal Reserve to aggressively raise 
interest rates and force the U.S. economy into a hard landing.
    Futures had traded near break-even before the labor market
report came out. S&P E-minis  EScv1  were up -0.98% to 3,930,
while Nasdaq E-minis  NQcv1  gained 1.32% and Dow minis  1YMcv1 
advanced by 1.20%. The pan-European STOXX 600  .STOXX  rose more
than 1%. 
    The Labor Department said non-farm payrolls increased by
315,000 jobs last month after surging 526,000 in July. Average
hourly earnings rose 0.3% compared with expectations of 0.4%, a
sign that a potential component for higher inflation was ebbing.
 urn:newsml:reuters.com:*:nL1N3082XU
    The market is worried about high levels of inflation and the
Fed having to move very aggressively, said Anthony Saglimbene,
chief market strategist at Ameriprise Financial.
    But inflation is beginning to come down, with gasoline
prices down for the 12th straight week. Gasoline prices have
fallen 25% from their mid-June highs, while prices paid in the
ISM manufacturing fell to their lowest levels since June 2020,
he said
    "So below the surface, and before we get the CPI and PPI
prints later this months, inflation is coming down," Saglimbene
said.
    "The labor market remains strong but not too hot, and we're
getting prices and inflation coming down, that really is a
scenario for a potential soft landing. We just need more data to
see if that's really case. 
    
    (Herbert Lash)
    *****
   
    FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT
- CLICK HERE:  urn:newsml:reuters.com:*:nL8N309257

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Nonfarm payrolls    https://tmsnrt.rs/3CSp5qB
inflation    https://tmsnrt.rs/3ANc0fT
Labor market participation    https://tmsnrt.rs/3wStLJg
Unemployment by duration    https://tmsnrt.rs/3Qk9iUU
Unemployment by race and ethnicity    https://tmsnrt.rs/3B6o4Ks
Underemployment    https://tmsnrt.rs/3AMpisO
Closing market prices    https://tmsnrt.rs/3KFPfPs
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>