foxex: On the Job

The Market Sum | Investopedia

Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

1. A blowout jobs report helps stocks close higher for 6th straight week.

Markets Close

Dow
25,063.89 +0.26%

S&P
2,706.53 +0.09%

Nasdaq
7,263.87 -0.25%

VIX
16.14 -2.60%

INV Anxiety Index
100.35 Neutral

US 10-Yr Yield
2.691 +2.13%

Markets Today

A blowout January jobs report boosted U.S. markets on the first day of February and may have calmed some concerns about recession fears and a broader slowdown across the economy. Stocks started strong, but faded near the close, yet still managed to close higher for the week, making it six straight weeks of gains for U.S. markets.

The Labor Dept. reported that 304,000 jobs were created in January, which was much higher than the 170,000 expected. The unemployment rate ticked up to 4%, which the Labor Dept. attributed to the government shutdown. Wage growth continues to trend higher, which is a good sign for consumer confidence and spending.

There were revisions to previous months, as December's 304,000 jobs created number was reduced down to 222,000. This happens all the time, which is why the jobs number, in and of itself, is a little squishy.

The jobs report, also known as the non-farm payrolls report, is not an exact count of the amount of jobs actually added in the month. It's based on a survey by the Bureau of Labor Statistics, which is part of the Dept. of Labor. That said, what is important is the trend. We've now had 100 straight months with net job additions in the U.S., and the unemployment number has been under 5% since September 2015. Those are good trends.

Why it Matters

Apart from the fact that we want an economy where people who want to work can find a job, the unemployment rate is one of the key indicators that the Federal Reserve focuses on when setting monetary policy and interest rates. Chairman Powell already told us this week the Fed would be more patient in raising rates to make sure the economy is on solid footing. A report like today's is yet another data point that it is. However, given the Fed's recent statements, we should not expect it to reverse course and plan more rate hikes just yet.

What's Next

There are a smattering of economic reports in the U.S. next week that are not worth paying attention to individually (unless you love this stuff), but worth the trend check. Are trends moving in the right direction to signify economic strength or at least stability? Of those, the two that stick out to us are as follows:

Purchasing Managers Index - PMI (Monday) This is exactly what it sounds like. Purchasing managers at 400 companies are surveyed for their take on spending decisions, hiring and future orders. Any number above 50 is a sign of strength.
MBA Mortgage Applications (Wednesday) - It's not worth paying attention to this every week but we can't deny we have seen softness in the housing market. It's happening at the high end of the market in major cities, for the most part, but these things have a tendency to trickle down. Look at the end of this chart from Calculated Risk and you can see the weakness, month to month. Rising interest rates have had an impact on mortgage applications, but now that the Fed has cooled its jets, this may tick back up again.

Earnings Next Week

We are in the teeth of earnings season right now with about 60% of the S&P 500 companies reporting. On average, companies are beating profit expectations by about 2.5%. Going forward into 2019, the benefit of the 2017 tax breaks will no longer be a tailwind for companies, so they will have to had earned it organically.

We'll hear earnings results from Alphabet (GOOGL) General Motors (GM), Goodyear Tires (GT) and YUM Brands (YUM), among other companies due to report next week.

As for General Motors, the company announced today it would make 4000 job cuts next Monday as part of a planned workforce reduction.

While earnings results from the prior quarter are important, it's their outlooks for 2019 that we care about most. Are they cautious given political and economic uncertainty, or are they confident given the Fed's latest stance and good signs from the trade talks?

Have a great weekend.

Chart of the Day: Amazon Returns to Bear Market Territory

Amazon.com (AMZN) returned to bear market territory once again on Friday. A stock is considered to be in a bear market when its price is 20% or more below its latest peak. In this case, that peak was the all-time high of 2050.50 on September 4 of last year. Amazon has actually been in and out of bear market territory since late October as last year's market volatility took its toll on the stock. Though AMZN has been on a general rebound along with the rest of the market since late December, it has yet to pare all of its recent losses. The stock is currently trading in a range between its 50-day and 200-day moving averages, and is still under a technical 'death cross' (50-day moving average crossed below 200-day moving average). These signs point to a still-bearish technical bias for Amazon.

How can we improve the Market Sum? Tell us at marketsum@investopedia.com