Happy Jobs Day!
Stocks got hammered after the January jobs report showed fewer jobs than expected were added in the first month of 2016 though the unemployment rate fell to a new eight-year low and wage growth was better than expected.
First, the scoreboard:
- Dow: 16,158, -257, (-1.6%)
- S&P 500: 1,874, -40, (-2.1%)
- Nasdaq: 4,351, -158, (-3.5%)
- WTI crude oil: $31.00, -2.3%
The jobs report
Friday was jobs day in the US.
The latest report showed that the US unemployment rate fell to an eight-year low of 4.9% in January, down from December’s 5.0%. The economy added 151,000 jobs in January, which was fewer than most economists were expecting.
On the positive side, wage growth was stronger than expected. Average hourly earnings rose 0.5% month-on-month, and 2.5% compared with January 2015.
As Ian Shepherdson at Pantheon Macro wrote following the report, “In one line: Payroll slowdown likely isn’t real, but the upturn in wage gains is.”
Shepherdson added: “To be clear: The seasonal adjustment issue here is big, so you cannot use these numbers in support of a broad economic slowdown story. The Fed tends to respond to headlines, but the drop in unemployment and robust wage numbers complicate things for them. Unemployment dipped despite a reported rise in participation, but note that the introduction of new population estimates triggers a small discontinuity in the data. Again, though, the published number matters, and the rate is now at its lowest since February 2008 and still falling.”
There was also some good news coming from the manufacturing sector.
After a rough couple of months, the Friday jobs report came with some much-needed good news for the industry: the sector added 29,000 jobs in January, the most since August 2013.
Notably, this month’s numbers are the continuation of a steady upward trend. Shepherdson suggested on Twitter: “Maybe all the recession talk is, well, a bit wrong.”
But, arguably, the biggest winners in the report were millennials.
January was the second-best month ever for employment growth in the 25-to-34-year-old bracket with a net 429,000 jobs added.
Since millennials have often seemed to get the short end of the stick in the jobs department in the post-financial-crisis recovery, it’s a pretty encouraging since to see a huge spike in jobs gains among younger workers.
Still, some economists saw mixed signals in the jobs report. Barclays’ Michael Gapen and his team were “confused” by the divergence between manufacturing and services employment. Manufacturing, as noted above, had a surprisingly strong month. But services, which makes up two-thirds of economic growth didn’t do well.
And now they think the Federal Reserve will raise rates only two times this year, replacing their previous call for three. (For what it’s worth, the Fed expects to hike four times.)
“The divergent signals from the two labour market surveys, in our view, mean the FOMC will likely desire to see further evidence to know whether the signal from a strong household survey or a weaker establishment survey is correct,” the team wrote.
In other news, LinkedIn’s stock had its worst day ever.
Shares cratered by as much as 40% in early trading on Friday after the company reported a quarterly loss on Thursday, with guidance that was weaker than expected. This was the worst decline ever for the stock and had erased about $10 billion of the company’s value.
“LinkedIn has rarely given investors a reason to own the stock in 1H and it has happened again. It will have to spend the balance of the year restoring confidence in a much tougher environment,”Pacific Crest’s Evan Wilson and Tyler Parker wrote.
Later in the day, venture capitalist Bill Gurley tweeted that this is the day startup-types are finding out what being an expensive stock really means.
The US oil rig count plunged for the 7th straight week, falling from 31 down to 467, according to data from driller Baker Hughes. This was the biggest weekly drop since April 2015, and the tally is now at the lowest level since March 2010.
On the political side of things, president Barack Obama is set to release his new budget plan next week. To promote investment in clean transportation projects, it will include a $10 tax on each barrel of oil sold. The proposal is probably not going to go over well with the Republican-controlled Congress.
Crude oil prices fell about 2.5% on Friday.
The truth about the stock market
“Every major sell-off in history has been accompanied by a mix of economic concerns, monetary policy shifts, geopolitical tensions, or some other source of consternation that might make a rational person demand a higher premium for putting their capital at risk. The details are different each time. But structurally, it’s generally the same story: it’s risky out there,” wrote outgoing markets editor Sam Ro.
“Amid all this, one pattern has stood the test of time: stocks will go down a lot, but then they will go up a lot more,” he added.
Notably, Warren Buffett once wrote something similar about the stock market:
“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497…”
A healthcare CEO said he would “fight and die” for Martin Shkreli’s “right to be a douche.”
One of the world’s most dangerous al Qaeda affiliates is having a resurgence.
Jessica Alba’s online retailer, The Honest Company, is looking to go public.
Bernie Sanders melted away a 30-point Hillary Clinton lead in a new poll.
The new McDonald’s kale salad is worse for you than a double Big Mac.
Software company Tableau lost almost half its value overnight.
Kyle Bass is going to war with his latest short target.
The Chinese New Year is coming.
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