[New York Stock Market] Mixed Trends Amid Steady Employment... Nasdaq Falls for 5 Consecutive Trading Days

The three major indices of the U.S. New York stock market closed mixed on the 4th (local time), digesting solid employment data amid weakness in tech stocks including Apple. The tech-heavy Nasdaq index continued its decline for the fifth consecutive trading day.

At the New York Stock Exchange (NYSE) that day, the blue-chip-focused Dow Jones Industrial Average rose 10.15 points (0.03%) from the previous close to finish at 37,440.34. The large-cap S&P 500 index fell 16.13 points (0.34%) to 4,688.68, and the Nasdaq index closed down 81.91 points (0.56%) at 14,510.30.

Among the S&P 500 sectors, all eight sectors except healthcare, financials, and industrials declined. The market cap leader Apple dropped more than 1% after Piper Sandler followed Barclays in lowering its investment rating. Autonomous driving technology company Mobileye Global plunged over 24% after its preliminary sales forecast for fiscal year 2024 fell short of expectations. Walgreens Boots Alliance fell more than 5% despite better-than-expected earnings, as it cut its dividend by nearly half. Comerica closed slightly higher after Goldman Sachs upgraded its rating to buy. Micron Technology also rose slightly following Piper Sandler’s upgrade.

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Investors focused on the private employment and other economic data released that day, as well as the weakness in major big tech stocks including Apple. The ongoing sluggishness of Apple, the top market cap company since the beginning of the year, has dampened overall investor sentiment. Following Barclays, Piper Sandler’s downgrade of Apple’s rating has confirmed downward pressure mainly on tech stocks that surged double digits last year.

However, experts assessed that this weakness is only a short-term correction due to profit-taking and would not significantly affect the medium- to long-term upward outlook. Steven Whitting, Chief Investment Strategist at Citi Global Wealth, appeared on CNBC and said, "Whether this situation continues or not, I don’t consider the past few days very important," calling it a "statistical coin toss." He expects the S&P 500 to end the year at around 5,000, more than 6% higher than the current level.

Christopher Harvey, an analyst at Wells Fargo, also cited "investor repositioning" as the background for the recent downturn in an investor memo that day. John Stoltzfus, Chief Market Strategist at Oppenheimer, said, "People have started to believe that a recession can be avoided and a soft landing is now possible," forecasting that the S&P 500 could rise to 5,200 this year.

Amid expectations that interest rate cuts will begin in earnest within the year, the employment data released that day still indicated a strong labor market. According to Automatic Data Processing (ADP), private sector employment in the U.S. increased by 164,000 in December compared to the previous month. This exceeded Wall Street expectations and was significantly higher than the previous month’s increase of 101,000. Although the wage growth rate was the lowest since October 2021 at 5.4% year-over-year, it is still considered a level that could exert upward inflationary pressure.

The weekly initial jobless claims released on the same day also fell short of Wall Street forecasts. According to the U.S. Department of Labor, claims for the week of December 24-30 totaled 202,000, down 18,000 from the previous week. Wall Street had expected 216,000 claims. CNBC described this as "a slowdown in layoffs in the last week of 2023," signaling strength in the labor market.

Ian Linsen, strategist at BMO Capital Markets, diagnosed, "The data gave no indication that authorities need to cut rates in the first quarter." Although the minutes of the December Federal Open Market Committee (FOMC) meeting released the previous afternoon included content suggesting that the current rate is near its peak and that cuts within the year would be appropriate, there was no detailed discussion on rate cuts that the market had been expecting. Instead, some participants expressed views that the current rate level might be maintained for a long time or that additional rate hikes could occur depending on economic conditions. As a result, the market is cautious that rate cuts may not happen as quickly as expected.

The next day, the Labor Department’s nonfarm payroll report, closely watched by the Federal Reserve (Fed), will be released. Investors are expected to use this to reassess the pace of Fed rate cuts. Wall Street expects the December nonfarm payroll increase to have slowed to 170,000 compared to the previous month.

Market consensus still favors a rate cut as early as March. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the probability that the Fed will cut rates by at least 0.25 percentage points in March exceeds 65%. The probability of a rate hold remains around 33%, but this has strengthened compared to the previous day and a week ago. This also reflects some caution that market expectations for rate cuts may be excessive.

In the New York bond market, Treasury yields rose. The 10-year U.S. Treasury yield rose to around 3.99%, and the 2-year yield, which is sensitive to monetary policy, rose to about 4.38%. The dollar index, which measures the value of the dollar against six major currencies, moved slightly down to around 102.4.

Oil prices fell on concerns over weakening demand. On the New York Mercantile Exchange, the price of West Texas Intermediate (WTI) crude for February delivery closed at $72.19 per barrel, down 51 cents (0.70%) from the previous day.