Stocks fall after surprise drop in US unemployment

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Stocks rose Friday morning as investors continued to assess the US monthly jobs report, which could influence the case for the Federal Reserve to start cutting interest rates. After an initial retreat, stocks turned positive.

The Dow Jones Industrial Average (^DJI) rose 0.2%, while the S&P 500 (^GSPC) advanced roughly the same amount. The tech-heavy Nasdaq Composite (^IXIC) gained 0.3%.

The US unemployment rate fell unexpectedly to 3.7% in November, the nonfarm-payrolls report showed, reflecting signs that the labor market may not be cooling as quickly as many had initially thought.

Meanwhile, the economy added 199,000 jobs, up from the previous month’s reading, as striking auto workers and Hollywood actors came back to the workforce.

The report will serve as a test for stocks, which rallied as investors grew optimistic that the Fed’s rate hikes have peaked and a “soft landing” for the US economy is in the cards. Hints of labor market cooling in earlier data this week were taken as a sign the Fed’s inflation fight is paying off.

Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards

Elsewhere, the UK antitrust regulator said Friday it will examine OpenAI’s partnership with Microsoft (MSFT) for a potential merger probe. The move comes after AI buzz boosted tech stocks on Thursday, with gains for Alphabet (GOOGL) and AMD (AMD) after they introduced products.

In commodities, oil prices bounced back but are still on course for the longest run of losses in five years as the market weighs whether extra OPEC+ cuts will fend off a global glut. West Texas Intermediate (CL=F) futures and Brent (BZ=F) crude futures were both about 2% higher.

  • Stocks trending in morning trading

    Here are some of the stocks leading Yahoo Finance’s trending tickers page during morning trading on Friday:

    Lululemon (LULU): The apparel company gained more than 3% Friday morning after initially losing steam following an earnings report Thursday that topped Wall Street estimates but fell short of fourth quarter revenue guidance. The reversal comes as more optimistic analysts say the company has shown consistency with no real signs of slowing down

    Broadcom (AVGO): The chipmaker and infrastructure software provider advanced 0.5% after reporting fiscal Q4 results that beat Wall Street estimates. Executives said demand for generative AI. The company’s executives said demand for generative AI-related tech is rising. And analysts at Bank of America reiterated a Buy rating on the stock.

    RH (RH): Formerly known as Restoration Hardware, the luxury home-furnishing company fell more than 13% after missing analysts’ expectations with revenue down 13.6% year over year.

    Docusign (DOCU): Shares rose1.5% after the company posted earnings that surpasses expectations, with a revenue of $700.4 million, up 9% from a year earlier. The company also posted adjusted earnings of $0.79 per share versus analyst estimates of $0.63.

  • Stocks cool as jobs report comes in hot

    Wall Street pumped the breaks on the end-of-year rally following a hotter-than-expected jobs report that market watchers see as lessening the chances the Federal Reserve will cut interest rates in early 2024.

    The Dow Jones Industrial Average (^DJI) fell 0.1%, while the S&P 500 (^GSPC) slid almost 0.2%. The tech-heavy Nasdaq Composite (^IXIC) declined by 0.4%.

  • Fed rate bets are on the move

    As expected, Friday’s hotter-than-expected jobs report is already having an impact on how traders expect the Federal Reserve to behave in the year ahead.

    Odds the Fed will cut rates in January dropped sharply early Friday — to 4% from 15% on Thursday, according to data from the CME Group.

    Looking out to March, which is when many economists expect to see the Fed begin its rate cuts, the odds that rates are down 25 basis points from current levels have dropped to 45% from 55% yesterday. The odds that 50 basis points have been taken off the fed funds rate by March are down to 3% from 9% as of Thursday.

    Next Tuesday’s inflation numbers will be the next chance for these expectations to recalibrate, but the read-through from Friday’s report is clear: The Fed has wanted to be patient and can likely remain so.

  • November jobs report takes pressure off the Fed

    The US economy added 199,000 jobs in November while the unemployment rate unexpectedly fell to 3.7%, taking pressure off the Federal Reserve to ease interest rates early next year.

    Economists had been looking for unemployment to hold steady at 3.9%.

    Wage gains in November rose more than expected over the prior month — up 0.4% vs. 0.3% expected — but moderated on an annual basis to 4%, in line with estimates but down from October’s 4.1% annual increase.

    Wage growth slowing while the economy continues to add jobs will likely bolster the Fed’s view that a soft landing is coming into focus for 2024.

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