[New York Stock Market] Rally on Wage Growth Slowdown... Nasdaq Up 2.56%

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market closed higher on the last trading day of the week, the 6th (local time). Despite a larger-than-expected increase in jobs in the December employment report, the rally was driven by confirmation that the wage growth, which is directly linked to inflation concerns, had somewhat eased.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 700.53 points (2.13%) from the previous close to finish at 33,630.61. The S&P 500, which focuses on large-cap stocks, closed up 86.98 points (2.28%) at 3,895.08, and the tech-heavy Nasdaq index ended the day 264.05 points (2.56%) higher at 10,569.29.

[Image source=Reuters Yonhap News]

By sector, all segments within the S&P 500 rose. Particularly, materials, technology, and real estate stocks saw significant gains. Major tech stocks such as Apple (+3.68%), Tesla (+2.47%), Meta Platforms (+2.43%), and Nvidia (+4.16%) all rallied together. Among individual stocks, Costco jumped 7.26% after releasing solid sales results. World Wrestling Entertainment surged 16.98% following news of the founder’s return to the board of directors. Biogen, which received conditional approval for an Alzheimer’s treatment, saw its trading briefly halted during the session but closed up 2.82%. On the other hand, Party City plummeted 49.9% amid foreign media reports that it would file for bankruptcy within weeks. Bed Bath & Beyond, once spotlighted as a meme stock and now facing bankruptcy, also continued its decline, falling 22.49%.

Investors closely watched the U.S. December employment report and remarks from Federal Reserve (Fed) officials on this day. According to the employment report released by the U.S. Department of Labor, nonfarm payrolls increased by 223,000 last month. Although this was lower than the previous month’s increase of 256,000, it far exceeded the market forecast of 200,000, confirming a still-strong labor market. Meanwhile, the unemployment rate fell from 3.6% (adjusted) in November to 3.5% in December, returning to the lowest level since the late 1960s.

However, the wage growth that the Fed has been concerned about appeared to have somewhat slowed. Average hourly wages in December rose 0.3% from the previous month and 4.6% year-over-year. The initial market forecasts were 0.4% and 5.0%, respectively, so the actual figures fell short. The year-over-year wage growth rate slowed to its lowest level since the summer of 2021. This was a somewhat relieving factor for the Fed, which has been grappling with strong employment data recently. The New York stock market also focused on the decelerated wage growth rate.

Drew Mathers, Chief Market Strategist at MetLife Investment Management, said, "From the market’s perspective, what they reacted to was the slower-than-expected wage growth," adding, "They are watching whether this is inflation or not. If wage growth weakens, the falling unemployment rate is not a big problem." Michael Aron, Chief Investment Strategist at State Street Global Advisors, also said, "What investors are concerned about is inflation," and added, "(The slower) wage growth suggests inflation is easing, so they are excited."

As a signal of easing inflation, U.S. Treasury yields fell in the New York bond market. The 10-year U.S. Treasury yield dropped to around 3.57%, even briefly falling to about 3.55% during the session. The 2-year yield, which is sensitive to monetary policy, also declined to around 4.26%. CNBC reported that the inversion spread between the 10-year and 3-month Treasury yields reached its widest since 1982. The inversion of long-term yields falling below short-term yields is generally considered a precursor to a recession.

Economic indicators for the services sector also fell to their lowest level since May 2020. According to the Institute for Supply Management (ISM), the December Services Purchasing Managers’ Index (PMI) was 49.6, below the baseline of 50. This was significantly lower than the market forecast of 55.1 and the previous month’s 56.5. A reading below 50 indicates contraction in the economy. Major foreign media noted that the service sector returned to contraction for the first time in 31 months.

However, some point out that the slowdown in wage growth in the employment report is unlikely to signal a major change in the Fed’s monetary policy decisions, as the overall labor market remains overheated. Employment data released since the start of the new year all support this overheated labor market. According to the ADP National Employment Report released the previous day by the private employment firm ADP, private sector employment in the U.S. increased by 235,000 in December, far exceeding the forecast of 153,000. The number of Americans filing for unemployment benefits also hit a 14-week low.

These strong employment indicators provide grounds for the Fed to continue additional tightening. Michael Schumacher, Head of Strategy at Wells Fargo Securities, said, "Wage growth is positive for the Fed," but added, "It will not bring about a major change in the Fed’s perspective."

Fed officials continued to deliver hawkish remarks on this day. Thomas Barkin, President of the Richmond Federal Reserve Bank, said, "There is still work to be done. Inflation is too high, and we need to watch until it returns to the 2% target," adding, "I expect further rate hikes." Raphael Bostic, President of the Atlanta Fed, predicted that interest rates would exceed the 5% range.

The dollar weakened. The Dollar Index, which measures the value of the dollar against six major currencies, fell more than 1% from the previous close to 103.9.

Oil prices rebounded for the second day due to bargain buying. On the New York Mercantile Exchange, February West Texas Intermediate (WTI) crude oil prices closed at $73.77 per barrel, up 10 cents (0.14%) from the previous close.