[New York Stock Market] Mixed Trends Awaiting Employment Report... Dow Down 0.56%

by Cho Seulkina

Published 02 Dec.2022 06:35(KST)

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The major indices of the U.S. New York stock market closed mixed on December 1st (local time), the first trading day of December, ahead of the release of the employment report that will gauge the Federal Reserve's (Fed) future moves. Treasury yields fell, and the dollar weakened.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,395.01, down 194.76 points (0.56%) from the previous session. The S&P 500, which is centered on large-cap stocks, closed at 4,076.57, down 3.54 points (0.09%). Meanwhile, the tech-heavy Nasdaq index ended the day up 14.45 points (0.13%) at 11,482.45.

By sector, 7 out of 11 S&P 500 sectors showed a decline. Among individual stocks, Salesforce fell 8.27% from the previous close following the resignation of co-CEO Brett Taylor. Costco dropped more than 6% after releasing weaker-than-expected sales figures. Discount retailer Dollar General fell 7.56% after lowering its annual guidance due to rising costs. Major financial stocks such as JPMorgan Chase (-1.40%) and Wells Fargo (-2.25%) also declined collectively. On the other hand, leading metaverse stocks like Meta Platforms (+1.98%) and Roblox (+5.10%) showed gains.

Investors digested Federal Reserve Chair Jerome Powell's remarks from the previous day while closely watching key economic indicators such as the personal consumption expenditures (PCE) price index, a preferred inflation gauge of the Fed, and movements in Treasury yields.

According to the U.S. Department of Commerce, the PCE price index for October rose 6.0% year-over-year, slightly slowing from the 6.2% increase in September. On a month-over-month basis, it increased by 0.3%. The core PCE, which excludes volatile food and energy prices, rose 5.0% year-over-year and 0.2% month-over-month in October. The core PCE increase also slowed compared to September's 5.2%. The month-over-month rise was below market expectations of 0.3%.

The core PCE is considered the Fed's most preferred inflation gauge when monitoring inflation trends. Notably, these figures came after the October Consumer Price Index (CPI) increase slowed to the 7% range, further accelerating market expectations that inflation has peaked. The day before, Chair Powell confirmed at the Brookings Institution that the Fed could slow the pace of rate hikes as early as December.

Now, investors are awaiting the employment report to be released the following day. Economists expect nonfarm payrolls in November to increase by 200,000, a slowdown from the previous month. The unemployment rate and wage growth are also key points investors are watching.

Edward Moya, senior market analyst at OANDA, diagnosed that the rally seen the previous day did not continue because investors are waiting for Friday's (2nd) employment report. He said, "As investors digest economic data showing easing inflation and a cooling labor market, the stock market could not maintain previous gains." Megan Horman, Chief Investment Officer at Verdens Capital Advisors, predicted that if the employment report the next day shows a large number indicating the Fed cannot slow the pace of rate hikes, it could further surprise the market.

The unemployment data released on the same day confirmed a stronger-than-expected labor market. The U.S. Department of Labor reported that initial jobless claims for the week of November 20-26 fell by 16,000 to 225,000 compared to the previous week. This decrease exceeded market expectations of a 5,000 decline. However, considering the previous week was a holiday season, some caution that this figure alone cannot fully assess the labor market situation.

The Institute for Supply Management (ISM) reported that the November manufacturing Purchasing Managers' Index (PMI) was 49.0, below the baseline of 50. This is the first time since May 2020 that the index fell below 50, which indicates contraction.

In the New York bond market, Treasury yields declined. The 10-year U.S. Treasury yield dropped to around 3.52%, hitting as low as 3.505% during the session. The 2-year yield, sensitive to monetary policy, also fell to 4.23%. This is interpreted as reflecting increased likelihood of smaller rate hikes following Powell's remarks on slowing the pace and the day's inflation data showing a slowdown.

The dollar weakened. The dollar index, which measures the value of the dollar against six major currencies, fell more than 1% to around 104. Meanwhile, gold futures jumped over 3%, marking the largest single-day gain since April 2020.

Oil prices rose. On the New York Mercantile Exchange, January West Texas Intermediate (WTI) crude oil prices closed at $81.22 per barrel, up 67 cents (0.83%) from the previous session. WTI prices have risen for four consecutive trading days.

This is interpreted as a reaction to news that some regions in China are easing COVID-19 restrictions. Investors are also paying attention to the upcoming oil-producing countries' meeting scheduled for the 4th and the European Union's (EU) ban and price cap on Russian oil imports set to take effect on the 5th. The Wall Street Journal (WSJ) reported citing sources that the EU Commission will propose a price cap of $60 per barrel on Russian crude oil.