The three major indices of the U.S. New York stock market are showing mixed trends in early trading on the 5th (local time) as they digest the employment data released consecutively this week. Ahead of the release of the U.S. November employment report on the 8th, some on Wall Street are pointing out that market expectations for interest rate cuts may be excessive.
At around 10:08 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was down 0.38% from the previous close, trading near 36,066. The S&P 500 index, which focuses on large-cap stocks, was down 0.07% at 4,566. Meanwhile, the tech-heavy Nasdaq index was up 0.38%, trading at 14,239.
Currently, eight sectors excluding technology, communication, and discretionary consumer stocks in the S&P 500 are all declining. GitLab, an open software development platform, is up about 13% from the previous close, buoyed by earnings that exceeded Wall Street expectations and strong guidance. CVS Health also rose more than 2% after releasing annual revenue guidance that surpassed expectations. Chinese electric vehicle maker Nio rose more than 5% after disclosing its third-quarter vehicle sales. Take-Two Interactive fell more than 1% after prematurely releasing a trailer for the new version of the Grand Theft Auto game, originally scheduled for 2025, due to an information leak. Additionally, Moody's downgraded China's national credit rating outlook from 'stable' to 'negative,' causing major China-related stocks listed on the New York Stock Exchange such as Tencent, Pinduoduo, JD.com, and Alibaba to show broad weakness.
Investors are focusing on economic indicators, including employment data released this week, ahead of the Federal Reserve's December Federal Open Market Committee (FOMC) regular meeting next week. The New York stock market rally, which had continued for five consecutive weeks, ended with a pullback on Monday due to concerns about the high levels reached. As a result, investors are carefully watching catalysts that could influence the year-end Santa rally. Greg Basak, CEO of AXS Investments, analyzed the market sentiment on the day as "reflecting the uncertainty investors have regarding the Fed and the trajectory of interest rates."
The U.S. job openings for October, released on the day, fell to the lowest level in two and a half years, reaffirming signs of a cooling labor market. According to the U.S. Department of Labor's October Job Openings and Labor Turnover Survey (JOLTs) report, new job openings totaled 8.73 million, down about 610,000 (6.6%) from the previous year. This figure is well below Dow Jones' estimate of 9.4 million and is the lowest since early 2021. The number of jobs per job seeker also decreased to about 1.3. Additionally, the Institute for Supply Management (ISM) reported that the November Non-Manufacturing (Services) Purchasing Managers' Index (PMI) was 52.7, exceeding both the previous month's 51.8 and Wall Street's forecast of 52.4. The S&P Global November Services PMI was 50.8, in line with preliminary estimates.
The ADP employment report will be released the following day, and the Department of Labor's November nonfarm payroll report is scheduled for the 8th. If these indicators also confirm a slowdown in the labor market, expectations for interest rate cuts next year could strengthen further. Wall Street estimates that November nonfarm employment will increase by 190,000. Starting midweek, a blackout period will be in effect ahead of the December FOMC, the last rate decision of the year, prohibiting public comments by officials. Therefore, no official remarks likely to influence the market will be made during the week.
With signs of employment slowdown confirmed on the day, Treasury yields are declining. The 10-year U.S. Treasury yield fell to around 4.18% in the New York bond market. The 2-year yield, sensitive to monetary policy, dropped to about 4.6%. The dollar index, which measures the value of the U.S. dollar against six major currencies, is moving around 103.7, remaining steady.
The market currently regards this month's interest rate hold as a foregone conclusion. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures on the day priced in a 99.9% probability that the Fed will hold rates steady this month. The probability of maintaining the hold through January next year exceeds 85%. The chances of a rate cut of 0.25 percentage points or more in March or May next year are 62% and 88%, respectively.
According to the Stock Trader's Almanac, December is typically the month when the Dow Jones and S&P 500 record the third-highest returns of the year. However, voices of caution continue on Wall Street, warning that recent market expectations may be excessive.
Jim Reid of Deutsche Bank AG conveyed the sentiment, saying, "There is skepticism about how much longer the rally can continue given the surprising rally in November and long-term positioning until more pro-soft landing indicators are confirmed." Mark Hafele of UBS said, "The market is pricing in too much good news on monetary policy," advising investors to lower their expectations for the December stock market gains. He added, "After the strong rally in November, the potential upside for the New York stock market looks more moderate."
European stock markets are also mixed. Germany's DAX index rose 0.58%, France's CAC index increased 0.59%, while the UK's FTSE index fell 0.53%.
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