Tech-Driven Rally Persists After Mixed Jobs Data
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Welcome to the Schwab Market Update podcast, where each trading day we recap key market results and statistics.

I'm Colette O'Claire, and here's a summary of what happened today, Friday, December 6th. But first, a programming note. The Schwab Market Update podcast is shifting to a pre-market publishing time to give you a wrap-up of the previous day's activity and a preview of what's happening today. Starting on December 9th, this podcast will no longer be released at the end of the day, but will come out before the market opens.

The week ended with technology still in command, following a sweet and sour jobs report that raised hopes the Federal Reserve will cut rates later this month.

Tech stocks led the way all week, and their large market capitalizations masked softness beneath the index level. By late today, two of the three major indexes traded higher, even as seven of 11 S&P sectors lost ground. Only three sectors rose during last week, but overall, the mood on Wall Street remains festive as the holidays approach.

The near-term bullish backdrop appears to be dominating investor psychology. A strong U.S. economy, a business-friendly administration coming into office next year, bullish seasonality, and the potential for year-end performance chasing from money managers, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

As long as the economic data remain firm, inflation remains in check, and bond yields don't creep too high, the bullish thesis likely remains intact. U.S. jobs growth revived in November to 227,000, the government said in its non-farm payrolls report earlier today. That was just above the average analyst estimate of 218,000 and a major leap from October's storm-rattled weakness.

Job gains included a nice bump in manufacturing industry positions. Hourly earnings grew 0.4% monthly, above the 0.3% average estimate.

However, there were signs of weakness as unemployment inched up to 4.2% from 4.1% previously and labor force participation fell a touch. Revisions to October brought growth that month up to just 36,000, not enough to salvage much strength in a period battered by hurricanes and worker strikes. And the Household Survey, which measures employment by contacting people rather than businesses…

Showed job losses last month of 355,000. The benchmark 10-year Treasury note yield finished near six-week lows and is down 30 basis points in the last three weeks.

Here's where the major benchmarks ended. The S&P 500 index rose 15.16 points, or 0.25%, to 6,090.27, to end the week up 0.96%. The Dow Jones Industrial Average fell 123.19 points, or 0.28%, to 44,642.52, to end the week down 0.60%.

And the Nasdaq Composite added 159.05 points, or 0.81%, to 19,859.77, to end the week up 3.34%. The 10-year Treasury note yield fell 3 basis points to 4.15% and was down 3 basis points for the week as well.

The SIBO Volatility Index, or the FIX, dropped to 12.76, its lowest close since July 12th.

As for stocks on the move today, market breadth, which had gained most of this fall, retreated this week as investors pivoted back toward mega caps following the cyclical rally. This could reflect rising valuations for many shares in sectors like financials and industrials due to the long rally and possibly somewhat softer economic data readings.

Consumer discretionary led all sectors today and over the last week, lifted by hopes that a strong U.S. economy, supported by possible tax cuts and lighter regulations, would ignite consumer demand for cars, vacations, and other major purchases. Defensive sectors like utilities and real estate sagged. This could be a sign that risk on trading is in control heading toward the end of the year and what's traditionally a firm-time seasonality for stocks.

Energy stocks were the worst performer today and this week as WTI crude oil posted a weekly loss even though OPEC pushed back on an output hike. The cartel's move got a bearish read, signaling soft demand. WTI crude's close today of $67.16 per barrel was a three-week low. The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news.

Ulta Beauty added 9% as the retailer beat Wall Street's earnings and revenue expectations and raised its full-year outlook. Shares are down for the year by double digits, however, in part due to slower beauty demand.

Lululemon Athletica soared nearly 16% after the athletic apparel retailer surpassed analysts' earnings expectations. The company raised its full-year outlook despite slower North American sales. The stock is down more than 30% this year amid growing competition.

Hewlett Packard Enterprise rallied 10.62% following an earnings beat for the Infotech company. Strong server revenue growth helped key the quarter, and its cloud business also grew.

UnitedHealth Group fell slightly more than 5 percent following yesterday's killing of UnitedHealthcare's chief executive, Brian Thompson. Other health insurers also fell, though, as Forbes reported. There was no earnings or legislative catalyst. Instead, the killing appeared to put the industry's coverage decisions into focus in a negative way.

Next week brings some key technology earnings late in the year and well after the end of traditional reporting season. Broadcom and Oracle top the list in terms of market capitalization and potential market influence among companies delivering results, with Oracle reporting Monday, followed by Broadcom on Thursday. Other earnings reports to watch next week include Sienna, Toll Brothers, and Costco.

Looking at market technicals, the Relative Strength Index momentum indicator touched the 70 level yesterday for the S&P 500, which is where the index has stalled out a bit over the past two months. However, the market is in what Schwab's Peterson calls a melt-up, meaning that while the post-election rally has been strong, it doesn't seem to be excessive or overly stretched.

If bond yields turn back up next week, though, that might drive some consolidation. Drilling into the payrolls report, manufacturing jobs growth of 22,000 followed a 46,000 drop in October and possibly reflected striking employees returning to work. Other areas of strength included 54,000 new health care jobs and 53,000 new leisure and hospitality positions, the government said.

The monthly rise in wages could partly reflect jobs growth in areas like manufacturing, where the former strikers came back to higher pay. However, wage growth of 4% annually was unchanged from October, and Fed Chairman Jerome Powell recently said he doesn't believe wage growth is driving sticky inflation.

It looks like the Fed expectations are being driven more by the rise in the unemployment rate and the weak household survey rather than rising wages, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research.

In other data today, the preliminary December University of Michigan Consumer Sentiment Report headline of 74.0 slightly topped the Briefing.com consensus of 73.5 and rose from 71.8 in November.

One interesting aspect of the report was a large increase in current economic conditions boosted by rising interest in durable goods purchases. This may reflect consumers trying to buy now to avoid price increases down the road, the report noted.

Year-ahead inflation expectations in the report rose to 2.9% from 2.6% in November, the highest in six months. But long-term inflation expectations fell to 3.1% from 3.2% in November. Today's jobs report kicked off a triumvirate of key data leading up to the Fed's December 17th to 18th meeting that could play into policymakers' decision.

Though data next Monday and Tuesday look light, Wednesday leads off with the November Consumer Price Index, or CPI, followed Thursday by the November Producer Price Index, or PPI. The early consensus for CPI is 0.2% headline growth and 0.3% core growth, with core excluding volatile food and energy prices. Those readings are the same as the growth seen in October for each, and neither hint at any slowing of inflation.

The housing market plays a big role in CPI, and existing home prices rose 3.4% month over month in October, the last month the data was reported. As of late today, traders see an 85% chance rates will fall 25 basis points at the conclusion of the Federal Open Market Committee meeting December 17-18, and a 15% chance of no move based on the CME FedWatch tool. This has been the Schwab Market Update Podcast.

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