By Teresa Rivas Oct. 5, 2018 5:30 p.m. ET Michael Haddad Text size Friday flounder.Stocks ended the week on a weak note Friday, as tech stocks slid and rising bond yields remained a worry while September payrolls disappointed. In today’sAfter the Bell, we… …talk about the jobs report; …as well as rising bond yields; and …watchGeneral Electric(GE) bubble to the top of the S&P 500. Only Know You’ve Been High When You’re Feeling Low All three major indexes had a down week, and were in the red Friday. TheDow Jones Industrial Averagelost 180.43 points, or 0.68%, to 26,447.05. TheS&P 500slid 16.04 points, or 0.55%, to 2885.57, and theNasdaq Compositefell 91.06 points, or 1.16%, to 7788.45. The jobs report came in below expectations, but wasn’t a major headline grabber, even as unemployment dropped to its lowest rate since 1969, as the strong labor market is well known at this point. The most notable aspect of the report was the strong sequential wage trends “that put wage growth on track to cross 3% in October, supported by broadening wage pressures across sectors,” writesMorgan Stanley’sRobert Rosener. That’s not surprising, given that the jobs report “has become an inflation report,” writesAmerprise’s Russell Price. Yet he believes that wage growth isn’t something to be feared: Yes, it’s an inflationary threat that could trigger a “more aggressive response” from the Federal Reserve, but a boost to the consumer income would be a positive. Moreover, labor costs are still “significantly below where they were in the previous tightening cycle,” writesLPL Financials’ John Lynch,which leads him to believe that “inflationary pressures have an ample cushion before they reach alarming levels.” Still, the jobs report wasn’t big enough to dislodge the worry about rising Treasury yields, which was Thursday’s big bugaboo. Goldman Sachs’ Ryan Hammondnotes that historically, the S&P 500 has been able to “digest gradual increases” in bond yields, stayed around flat when yields rise between 20 and 40 basis points, but seen returns turn negative when bond yields rise by more than 40 basis points. Thursday’s price action was in the latter camp, explaining investors’ worry. Still, his firm is forecasting a gradual rise, with the 10-year Treasury yielding 3.4% by the end of 2019. “Despite this strategic risk, we still forecast positive returns for U.S. equities next year given the gradual trajectory of bond yields and solid earnings growth of 7% in 2019.” Moreover, rising bond rates aren’t surprising, given the context of a stronger economy, higher inflation expectations, and the Fed’s rising rate plan, writesSunTrust’s Keith Lerner. The Fed’s hike plan is one of the main reasons he expects a “bumpier path for equities” ahead, but just looking at the relationship between the stock market and a rising 10-year U.S. Treasury yield, “stocks have risen in 12 of the 15 periods we studied, or 80% of the time since the 1950s. This makes sense so much as higher rates tend to coincide with an expanding economy.” So while interest rates might move higher, they’ll likely find a “new equilibrium” closer to current levels rather than spiking, writesIndependent Advisor Alliance’s Chris Zaccarelli, and once the volatility recedes, investors will once again be free to focus on more positive news, like corporate earnings and economic strength. That fuels his belief that the market will again return to record highs before the end of the year. Let’s not forget that yields are hardly the first worry for stocks: The third quarter was marked by escalating trade tensions, emerging-markets weakness, and rising interest rates, and yet it was still a stellar one for stocks, helped by those economic and earnings catalysts. “Many of the risks that might end the bull market are still more hypothetical rather than probable,” writesOak Associates’ Robert Stimpson. True, it’s often the risk that markets don’t see coming that winds up being a rally killer, but for the moment at least, “signs of stock market overheating have yet to develop,” and he remains “cautiously optimistic.” The Hot Stock GE shot to the top of the index Friday, after theWall Street Journalreported that the conglomerate’s new CEO,Larry Culp, appears to have plenty of reasons to get the stock going again—perhaps hundreds of millions of them. GE rose 52 cents, or 4.1%, to $13.18. AsThe Wall Street Journalreports,GE agreed to pay Culpas much as $21 million a year for four years, but that figure could rise into the hundreds of millions of dollars if the stock reaches certain performance milestones. Wall Street haswelcomed Culp’s leadership–the stock had its best five-day run since March 2009--although heinherits plenty of problems. GE is down 24.5% year to date, and has lost 46.3% in the past 12 months. The top five stocks in the S&P 500: General Electric: 4.2% Tyson Foods(TSN): 2.6% FirstEnergy(FE): 2.3% DTE Energy(DTE): 2.1% Clorox(CLX): 2.1% The Biggest Loser IPG Photonics(IPGP) sank to the bottom of the index, after warning its third-quarter would miss expectations. IPG Photonics lost $21.26, or 13.8%, to $132.76. The company warned that it would earn $1.68 to $1.72 a share in the third quarter, down from a prior EPS range of $18.3 to $1.87, and below the $1.94 consensus estimate. It sees revenue of $355 million to $356 million, down from $360 million to $390 million, and compared with the $376 million consensus. IPG Photonics is down 38% year to date, and it’s lost 30.5% in the past 12 months. The bottom five stocks in the S&P 500: IPG Photonics: -13.8% Newell Brands(NWL): -5.8% Eastman Chemical(EMN): -5.6% Costco Wholesale(COST): -5.6% Dish Network(DISH): -5.3% https://www.barrons.com/articles/bond-yields-are-rising-what-that-means-for-investors-1538680138
I always thought there is an inverse relationship between the job report and the stock market performance. The better the job report, the more ammunition for the Fed to raise interest rate thus leading to stock market down whereas the worse the job report would make the Fed think twice about raising interest rate thus giving an expansionary effect to the economy thus tending to push the stock market up. It's interesting to see that on the past Friday, the job report actually had opposite effect on the stock market. I also highly doubt the accuracy of the current job report. Both ADP and Unemployment Claims preceding it shows positive job growth and yet NFP is worse? I mean the only difference between the ADP and the NFP is the governmental workers. So there is THAT large of an exodus of government employees that it impacted the NFP that much?
Is there a productivity indicator that we can use to show the change in productivity? Just looking at wage growth without taking into account the change in productivity is a very misleading way to gauge "inflationary pressure" and could result in unnecessary tightening of economy when it might not be needed.
The Dow being "down 180 points" is mere noise....2/3 of 1%. Anyone who ascribes significance to that is an idiot.