U.S. Stock Market: Saved by Robust Jobs Report, Stellar Consumer Sentiment

The major U.S. equity markets finished mixed in a week where economic data moved to the forefront, bypassing confusing trade-deal news. International equity markets outperformed U.S. markets on the back of the fourth straight month of improvement in global manufacturing PMI, a proxy for global growth.

“The surveys are consistent with a still soft but improving demand environment, which suggests to us that the manufacturing down cycle may have run its course,” analysts at Edward Jones said.

The U.S. stock market posted its biggest one day gain in over a month on Friday following the November jobs report, which showed robust job gains, rising wages, and an unemployment rate that retested a 50-year low. This news combined with a seven-month high in consumer sentiment, provided further evidence that the resilient U.S. economy is back on track to finish the year on solid footing.

In the cash market last week, the benchmark S&P 500 Index settled at 3145.91, up 0.2%. It is up 25.5% this year. The blue chip Dow Jones Industrial Average closed at 28015.06, down 0.1%. It has gained 20.1% so far this year. The technology-based NASDAQ Composite finished at 8656.53, down 0.1%. For the year, it is up a whopping 30.5%.

Weekly Roller Coaster for Stocks

The market was hit hard early in the week in reaction to weaker-than-expected ISM Manufacturing PMI data which fell further into contraction territory for the fourth straight month to a near decade-low level.

Although investors sold stocks initially to the news, some analysts downplayed the weakness saying that during this current expansion, the ISM manufacturing PMI went through five straight months of drawdowns in 2015.

By the end of the week, the stock market ship had righted itself, moving higher on the back of fresh data on the labor markets and the stunning report on consumer sentiment. Both reports underscored the overall health of the U.S. economy while putting the major equity markets in a position to retest all-time highs this week.

Fed Will Be Cautious

If you recall last December, the Federal Reserve increased its benchmark interest rate to 2.5%, the highest level of the expansion. This triggered a steep plunge in U.S. equity markets that came to a screeching halt on Christmas Eve.

This week, the Fed meets again to announce its rate policy after cutting the Federal Funds rates three time in 2019 to between 1.50 – 1.75%. Given that rate hikes tend to signal the end of bull markets, investors are more likely to expect central bank policymakers to lower benchmark rates than to raise them.

However, we think the Fed is most likely to hold rates steady.