[New York Stock Market] Mixed Close in Narrow Range Despite Employment Slowdown and Decline in Treasury Yields... Cautious Trading

The three major indices of the U.S. New York stock market closed mixed and near flat on the 5th (local time) as investors maintained a cautious stance. Bond yields fell due to employment data suggesting a slowdown in the labor market, fueling expectations of a Federal Reserve (Fed) rate cut, which led to gains only in the tech-heavy Nasdaq index. Apple, the largest company by market capitalization, rose over 2%, surpassing the $3 trillion market cap again.

At the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 36,124.56, down 79.88 points (0.22%) from the previous session. The large-cap S&P 500 index fell 2.60 points (0.06%) to 4,567.18. The tech-focused Nasdaq index rose 44.42 points (0.31%) to close at 14,229.91.

Within the S&P 500, eight sectors excluding technology, communication, and consumer discretionary stocks all declined. Apple rose more than 2% from the previous close, pushing its market cap back above $3 trillion. Nvidia, a leading AI stock, also gained over 2%. Tesla, Amazon, and Google Alphabet all showed gains in the 1% range. Open software development platform GitLab jumped over 11% following earnings that beat Wall Street expectations and strong guidance. CVS Health also rose nearly 4% after releasing annual revenue guidance that exceeded expectations. Chinese electric vehicle maker Nio rose over 1% after disclosing its Q3 vehicle sales. On the other hand, Moody’s downgraded China’s sovereign credit rating outlook from ‘stable’ to ‘negative,’ causing major Chinese stocks listed on the New York Stock Exchange such as Tencent, Pinduoduo, JD.com, and Alibaba to weaken collectively. Additionally, ExxonMobil and Pioneer Natural Resources each fell nearly 2% following news of the Federal Trade Commission’s (FTC) merger and acquisition (M&A) investigation.

[Image source=Reuters Yonhap News]

Investors are showing caution ahead of the Federal Reserve’s December Federal Open Market Committee (FOMC) regular meeting next week, closely watching employment data and bond yield movements released this week. The New York stock market rally that lasted five consecutive weeks has shifted to a consolidation phase this week amid concerns over high valuations. Economic media CNBC reported, "The day’s price movements raised questions about whether the market had risen too quickly following the previous day’s decline." Greg Basak, CEO of AXS Investments, analyzed the market sentiment as "reflecting investors’ uncertainty regarding the Fed and the trajectory of interest rates."

The U.S. job openings for October, released that 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), new job openings totaled 8.73 million, down about 610,000 from the previous year. This figure was well below Dow Jones’ estimate of 9.4 million and marked the lowest level since early 2021. The number of jobs per job seeker also dropped to about 1.3. Additionally, the Institute for Supply Management (ISM) reported the November non-manufacturing (services) Purchasing Managers’ Index (PMI) at 52.7, exceeding both the previous month’s 51.8 and Wall Street’s forecast of 52.4. S&P Global’s November services PMI was 50.8, matching preliminary estimates.

Bill Adams, chief economist at Comerica Bank, said, "The once-hot labor market is definitely cooling," adding, "The frenzy of rapidly accelerating wage increases due to the surge in hiring and resignations after the pandemic is over." Stuart Paul, economist at Bloomberg Economics, stated, "The labor market is easing, economic activity is slowing, and disinflation is likely to continue in the short term," and predicted, "The Fed will start cutting rates from the end of Q1 next year." 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.

As signals of labor market slowdown were reconfirmed, bond yields fell that day. In the New York bond market, the 10-year U.S. Treasury yield dropped to around 4.17%. The 2-year yield, sensitive to monetary policy, fell to about 4.58%. The dollar index, which measures the dollar’s value against six major currencies, rose more than 0.2% to around 103.9.

Currently, the market has largely priced in a rate hold at the December Federal Open Market Committee (FOMC) meeting next week. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures on that day reflected 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 over 64% and 90%, respectively. However, local media added that Fed Chair Jerome Powell is likely to draw a line against market expectations for rate cuts, fearing that inflation expectations could surge.

Concerns that market expectations for rate cuts are excessive continue. Earlier, Goldman Sachs recommended options trading, arguing that the market’s pricing of next year’s cuts was overly optimistic, and BlackRock also warned that market optimism about the size of cuts is excessive. Wei Li, a BlackRock strategist, said, "There is a risk that these hopes will lead to disappointment," adding, "Higher rates and greater volatility are becoming the new norm."

Mark Hafele of UBS said, "The market is pricing in too much good news on monetary policy," and advised investors to lower their expectations for the December stock market gains. He said, "After a strong rally in November, the potential upside for the New York stock market looks more moderate."

International oil prices closed lower due to economic uncertainty and other factors. On the New York Mercantile Exchange (NYMEX), January delivery West Texas Intermediate (WTI) crude oil fell $0.72 (0.99%) to close at $72.32, marking the fourth consecutive day of decline.