Stocks slipped on Friday, giving the bears a clean sweep for the abbreviated week, after the Employment Situation report for August showed a stronger-than-expected increase in average hourly earnings and after President Trump threatened yet another round of tariffs on Chinese goods. The S&P 500 finished lower by 0.2%, while the Dow Jones Industrial Average and the Nasdaq Composite lost 0.3% apiece.
The Employment Situation report for August crossed the wires early Friday morning, showing a 0.4% rise in average hourly earnings (Briefing.com consensus +0.2%), which pushes the year-over-year rate to 2.9% -- its highest level since May 2009. That ignited fears that inflation may be picking up more than expected, as that may force the Fed to be more aggressive in raising rates.
Equity futures dipped lower following the release, but the market didn't stay down for long, with the S&P 500 fully reclaiming its opening loss of 0.4% about an hour into the session. However, President Trump sent stocks back to their opening levels around midday after saying that he's got another tranche of tariffs on $267 billion of Chinese goods "ready to go" if China retaliates to a U.S. bid to impose a tariff on an additional $200 billion of Chinese goods (which hasn't happened yet, but is expected by many to come to fruition soon).
In the end, the S&P 500, which traded as high as +0.2% and as low as -0.5%, settled near the middle of its trading range. 10 of 11 S&P sectors finished in negative territory, with health care (+0.2%) being the lone exception. The lightly-weighted utilities (-1.2%) and real estate (-1.2%) spaces were the worst performers, but losses were modest in general, with no other group dropping more than 0.5%.
The top-weighted technology space outperformed for much of the day, but eventually finished in line with the broader market, losing 0.3%. Within the space, Broadcom (AVGO 232.58, +16.61) rallied 7.7% after reporting better-than-expected earnings for its fiscal third quarter. Meanwhile, Apple (AAPL 221.30, -1.80) dropped in the late afternoon, settling lower by 0.8%, following headlines that the Trump administration's proposed tariff list may cover a wide range of the company's products.
In other corporate news, electric automaker Tesla (TSLA 263.24, -17.71) tumbled 6.3%, hitting a five-month low, after its Chief Accounting Officer announced his resignation after just a month with the company and following headlines that its Chief People Officer will not be returning from her leave.
Looking at other markets, U.S. Treasuries sold off on Friday after the release of the August jobs report, sending yields higher across the curve. The yield on the Fed-sensitive 2-yr note jumped six basis points to 2.69%, and the yield on the benchmark 10-yr note also rose six basis points, closing at 2.94%. Elsewhere, the U.S. Dollar Index rallied 0.4% to 95.34, and WTI crude futures slipped 0.1% to $67.76/bbl.
Reviewing the Employment Situation report for August, which was Friday's only economic report:
- August nonfarm payrolls increased by 201,000 while the Briefing.com consensus expected an increase of 187,000. The prior month's increase was revised to 147,000 from 157,000. Nonfarm private payrolls rose by 204,000 while the Briefing.com consensus expected an increase of 175,000. The previous month's increase was revised to 153,000 from 170,000. Average hourly earnings increased 0.4% (Briefing.com consensus +0.2%), while the previous month's increase was left unrevised at 0.3%. The average workweek was reported at 34.5 (Briefing.com consensus 34.5). The unemployment rate stayed at 3.9% (Briefing.com consensus 3.9%).
- The wage growth should be regarded as good news, yet the key takeaway for the market is that it will keep the Fed in a tightening gear, which most likely includes two more rate hikes before the year is done.
Looking ahead, investors will receive just one economic report, the Consumer Credit report for July, on Monday.
- Nasdaq Composite +14.5% YTD
- Russell 2000 +11.6% YTD
- S&P 500 +7.4% YTD
- Dow Jones Industrial Average +4.8% YTD
Week In Review: Three-Week Rally Comes to an End as Tech Shares Slide
Investors returned from the extended Labor Day weekend in a selling mood, pulling stocks away from last week's record highs. The S&P 500 ended the week with a loss of 1.0%, while the tech-heavy Nasdaq Composite dropped 2.6%. The Dow Jones Industrial Average showed relative strength, but still finished lower by 0.2%.
The week kicked off with Amazon (AMZN) becoming the second U.S. company, after Apple (AAPL), to reach a market cap of $1 trillion and with Nike (NKE) unveiling a controversial ad for the 30th anniversary of its "Just Do It" campaign that features Colin Kaepernick, the former San Francisco 49ers quarterback credited with starting the national anthem protests. Amazon soon fell back after touching the $1 trillion milestone on Tuesday though, ending the week with a market cap of $952 billion.
On the Gulf Coast, residents braced for Tropical Storm Gordon to make landfall, which it did on Tuesday evening. Oil prices rallied in anticipation of the storm disrupting crude production, but gave back all of those gains after the storm turned out to be less damaging than feared. Oil prices then fell further on Thursday when the EIA's weekly inventory report showed a 4.3 million barrel drop in crude stockpiles, but a 1.8 million barrel jump in inventories of gasoline. In total, WTI crude futures lost 2.9% this week, settling Friday at $67.76/bbl, and the oil-sensitive energy sector lost 2.3%.
The top-weighted information technology sector also underperformed this week, dropping 2.9%. Within the group, social media names were in focus after Facebook's (FB) COO, Sheryl Sandberg, and Twitter's (TWTR) CEO, Jack Dorsey, testified before the Senate Intelligence Committee on Wednesday morning, defending their efforts to prevent election meddling. Mr. Dorsey also appeared before the House Energy and Commerce Committee in the afternoon, rebuking allegations that Twitter promotes certain political ideologies. The hearings didn't produce any new information of note, but that didn't prevent Facebook and Twitter shares from tumbling 2.3% and 6.1% on Wednesday, respectively.
On the trade front, U.S.-China trade tensions resurfaced at the tail end of the week, as many thought the White House would impose tariffs on $200 billion worth of Chinese goods on Thursday at midnight following the end of a public comment period. That didn't happen, but President Trump did raise the stakes on Friday, saying that he's got another tranche of tariffs on $267 billion of Chinese goods "ready to go" if Beijing retaliates to the $200 billion tranche.
On a related note, trade talks between the U.S. and Canada resumed this week after the two sides failed to reach an agreement last Friday, but investors were skeptical that a deal would get done after President Trump tweeted on Saturday that there's "no political necessity to keep Canada in the new NAFTA deal." As of Friday's closing bell, officials still had not reached an agreement.
In economic data, the Employment Situation report for August crossed the wires on Friday morning, causing some knee-jerk selling due to a higher-than-expected increase in average hourly earnings (+0.4% actual vs +0.2% Briefing.com consensus), which ignited some fears that inflation might be picking up. However, the realization that the economy is still strong, evidenced by a larger-than-expected increase in nonfarm payrolls (+201K actual vs +187K Briefing.com consensus) and an unemployment rate of 3.9%, helped keep losses in check.
As for the Fed, Friday's jobs report virtually locked in a September rate hike and increased the chances of a December rate hike to 79.8% from 72.8% on Thursday.