U.S. equities finished lower, as September's nonfarm payroll report showed continued steady job growth, but Honeywell International disappointed with its guidance. Crude oil prices turned lower, trimming a solid weekly gain, exacerbated by headlines about Russia's willingness to reach a deal with OPEC at next week's World Energy Congress meeting.
Meanwhile, treasuries finished mixed, showing little reaction to a jump in consumer credit that came in the final hour of trading, the U.S. dollar lost ground, and gold was little changed. In other equity news, Gap Inc (NYSE:GPS) rallied on its September sales report.
The Dow Jones Industrial Average (DJIA) dipped by 28 points (0.2%) to 18,240, the S&P 500 Index lost 7 points (0.3%) to 2,154, and the Nasdaq Composite fell 14 points (0.3%) to 5,292. In moderately-heavy volume, 938 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.63 to $49.81 per barrel, wholesale gasoline decreased $0.02 to $1.48 per gallon and the Bloomberg gold spot price inched $0.79 higher to $1,255.17 per ounce.
Elsewhere, the dollar index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 96.59. Markets were lower for the week, as the DJIA lost 0.4%, the S&P 500 Index decreased 0.7% and the Nasdaq Composite was 0.4% lower.
Honeywell International Inc. (NYSE:HON $107) finished lower after the company lowered its 3Q earnings and revenue guidance, reflecting the impacts of lower shipments and volumes in some areas and continued program delays, along with reorganization efforts and recent acquisitions and divestitures.
Gap Inc. ($26) reported that September same-store sales declined 3.0% year-over-year (y/y), versus the FactSet estimate of a 3.1% decrease, with sales at Gap and Banana Republic falling, while Old Navy sales rose. The company noted the negative impact on sales of the fire which occurred in a building on its Fishkill, New York distribution center campus. Shares rallied.
CIT Group Inc DEL (NYSE:CIT). ($37) announced an agreement to sell its commercial aircraft leasing business to Avalon Holdings Corporation (NYSE:AWX). for a purchase price of $10.0 billion. Shares were higher.
September nonfarm payroll report suggests steady job growth
Nonfarm payrolls (chart) rose by 156,000 jobs month-over-month (m/m) in September, compared to the Bloomberg forecast of a 172,000 increase. The rise of 151,000 seen in August was upwardly revised to a gain of 167,000 jobs. The total downward revision to job gains in July and August was 7,000. Excluding government hiring and firing, private sector payrolls increased by 167,000, versus the forecasted gain of 170,000, after increasing by 144,000 in August, upwardly revised from the 126,000 rise that was initially reported. Job gains were seen in professional and business services and in healthcare.
The unemployment rate ticked higher to 5.0% from 4.9%, where it was expected to remain, with the labor force participation rate ticking higher, while average hourly earnings grew by 0.2% m/m, below projections of a 0.3% increase, and August's 0.1% rise was unadjusted. Finally, average weekly hours rose to 34.4 from August's unrevised 34.3 hours level, matching forecasts.
Today's report appeared to have little impact on moving the needle on Fed rate expectations, which have received a boost as of late amid continued hawkish Fedspeak and some favorable economic data, headlined by this week's jump in growth out of the key services sector. The recent uptick in economic data follows a lackluster string of August reports, which caused some growth concerns to ramp up.
Wholesale inventories (chart) declined 0.2% m/m in August, following the 0.1% dip in July, and compared to forecasts calling for a 0.1% decline. Sales were up 0.7% m/m, versus the expected 0.1% increase and the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—dipped to a 1.33 months level from the 1.34 months pace posted in July.
Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $25.9 billion during August, the fastest pace in nearly a year and well more than the $16.5 billion forecast of economists polled by Bloomberg, while July's figure was adjusted modestly upward to an increase of $17.8 billion from the originally reported $17.7 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $20.2 billion, while revolving debt, which includes credit cards, increased by $5.6 billion.
Treasuries finished mixed, with the yield on the 2-year note 2 basis points (bps) lower at 0.84%, the yield on the 10-year note down 1 bp to 1.73%, while the 30-year bond rate rose 1 bp to 2.46%.
Europe lower as pound's tumble catches attention, Asia also sees losses
European equities finished mostly lower, with the global markets digesting another steady nonfarm payroll report in the U.S., while a sudden drop in the British pound appeared to unnerve sentiment, though it boosted U.K. stocks. The pound tumbled briefly overnight by more than 6.0% in what is being termed a flash crash, with reports of what caused the drop ranging from computer-initiated sell orders, a human error, or a "fat finger", as well as low liquidity at the time. The pound recovered somewhat, but remained solidly lower at a more than 30-year low versus the greenback.
The pound has seen pressure this week on concerns about a hard U.K. Brexit, with uneasiness rising that the nation will not get favorable terms in its deal to leave the European Union. The hard Brexit worries were amplified by reports that French President Hollande urged the EU yesterday to take a tough stance in negotiations with the U.K. European Central Bank President Mario Draghi spoke today, noting that, if warranted, the central bank will act by using all instruments within its mandate to prevent harmful second-round effects. The euro was little changed versus the U.S. dollar, while bond yields in the region gained ground. However, oil & gas issues bucked the trend in the wake of this week's rebound in crude oil prices.
Asian stocks finished mostly lower, as caution ahead of today's key employment report in the U.S. was met with uneasiness stemming from the sudden drop in the British pound, amid festering Brexit concerns, while holidays await Hong Kong and Japan on Monday. Mainland Chinese markets remained closed for the golden week holidays. Japanese equities declined, with the yen recovering modestly from its recent drop versus the U.S. dollar on increased Fed rate hike expectations and uncertainty toward the Bank of Japan's recent change of direction in monetary policy. Meanwhile, stocks in Hong Kong, South Korea, Australia and India all moved lower as well.
Stocks dip as conviction stymied by plethora of headwinds
The equity markets finished lower for the week, with the U.S. dollar rising and Treasury yields rallying as December Fed rate hike expectations got a boost courtesy of another dose of hawkish Fedspeak, while a jump in services sector output to the highest level in almost a year complimented a rebound in manufacturing activity to expansion territory.
Moreover, reports fostered concerns that the European Central Bank could taper its asset purchases sooner than some had expected, worries flared-up about a hard U.K. Brexit, and uncertainty festered surrounding the Bank of Japan's shift in monetary policy, exacerbating conviction. However, crude oil prices rallied to help energy stocks eke out a weekly gain, in the wake of another bullish government oil inventory report, while the Fed rate hike expectations lifted the financial sector solidly higher on the week.
This sets the stage for next week, with U.S. economic data continuing to garner attention, headlined by the releases of the Fed's September meeting minutes, retail sales, the Producer Price Index (PPI), and the preliminary University of Michigan Consumer Sentiment Index. However, some of the attention will likely be diverted to the start of 3Q earnings season, unofficially kicking off with Alcoa Inc's (NYSE:AA $31) results on Tuesday after the close.
As noted in the Schwab Market Perspective: Crunch Time, after five consecutive quarters of declining corporate earnings, the coming reporting season could prove to be important as earnings need to start to carry the weight if this bull market is to advance in our view. If the so-called "beat rate" (the percentage by which companies ultimately exceed consensus expectations) is consistent with the recent past, the quarter could see earnings move back in positive territory. If earnings disappoint, the market could be vulnerable.
The collapse in the oil market is now in the rear-view mirror, which should help to solidify both the energy and basic materials sectors' earnings growth rates. And the stability in the dollar has also removed what had been a headwind for exporters and the industrials sector.
International reports due out next week that deserve a mention include: China—Caixin Services PMI Index, trade balance, CPI and PPI, and lending statistics. India—industrial production, trade balance, CPI and PPI. Japan— trade balance and machine orders. Eurozone—industrial production and trade balance, along with German investor confidence and CPI.