US equities fell Friday after a choppy day of trading, with tech sector declines pulling indices lower.
The S&P 500 (^GSPC) fell 0.65%, or 17.69 points, at the end of trading, while the Dow (^DJI) slipped 0.45%, or 114.59 points. The Nasdaq (^IXIC) fell 1.04%, or 77.06 points. Stocks pared heavy losses after President Donald Trump told reporters Friday afternoon that he thinks the US will reach a trade deal with China.
The yield on the 10-year note ticked up 7 basis points to 3.214%, while the yield on the 30-year Treasury note rose to 3.45%.
The US added more jobs than expected in October and wages grew to the fastest pace in nine years, a Department of Labor report showed Friday. While the solid jobs report is yet another indicator of still-strong economic fundamentals, it also adds to inflationary concerns as average wages ticked up. This could, in turn, push the Federal Reserve to hike rates at a more aggressive pace.
“The economy really cranked it up a notch in October and this will give Fed officials the confidence to keep raising interest rates to normal levels because this economy does not need the support of monetary policy to continue to grow,” Chris Rupkey, chief financial economist at MUFG, said Friday.
But these monetary policy worries – along with other macroeconomic pressures including trade tensions – could be compensated for by the strong corporate earnings that have been released recently, other analysts said. About 80% of S&P 500 companies have reported third-quarter results to-date, with earnings are beating by 6.2%, compared to 4.8% over the past three years, Credit Suisse’s Jonathan Golub pointed out in a note.
“A laundry list of macro headwinds are weighing on the market, with a more hawkish Fed and tariffs topping concerns,” Golub said. “While the economy and EPS will clearly decelerate next year, consensus expectations for 2019 GDP of 2.5% (from 2.9%) and EPS growth of 10% (from a tax-driven 22%) should be more than enough to support stock market upside.”
October was volatile for stocks, with the three indices barely eking out two consecutive days of gains the last days of the month. Some analysts feel the red month opened up a buying opportunity for investors.
“In our view, much of the ‘pullback’ was normal and followed a traditional playbook. As such, we are relying on good old-fashioned analysis and historical perspective to define a potential path from here,” BMO Capital Markets’s Brian Belski wrote in a note. “Indeed, positive fundamentals and steady macro data remain in place, thereby providing investors with one of the best buying opportunities in several months. Thanks, October.”
NEWS: Trump said he thinks the US will come to a trade deal with China
Stocks pared losses after President Donald Trump told reporters Friday afternoon that he believes the US will reach a trade deal with China. This caps off a string of contradicting reports about the state of the US-China trade disputes. Bloomberg reported earlier Friday that Trump asked his officials to draft a US-China trade deal, but top White House economic advisor Larry Kudlow later refuted the account and said Trump had not put the Cabinet up to the task. Trump will meet with Xi Jinping at the Group of 20 summit in Argentina later in November.
ECONOMY: US economy adds more jobs than expected in October, hourly wages rise to fastest annual pace in nine years
Nonfarm payrolls grew by 250,000 in October, exceeding consensus expectations of 200,000, according to data compiled by Bloomberg. The unemployment rate held at 3.7% for the month, unchanged from September, representing the lowest level for overall unemployment since 1969.
“This looks great, but it’s impossible to know whether the overshoot to consensus is due to an uptick in the trend, or the return of people who dropped off payrolls after Hurricane Florence, or a smaller-than-expected hit from Hurricane Michael – both storms made landfall in the survey weeks – or just regular noise,” Ian Shepherdson, chief economist of Pantheon Macroeconomics, wrote in a note. “If payroll growth really is going to be sustained nearer 250K than 200K, then a continued rapid decline in the unemployment rate is assured.”
Average hourly earnings rose 3.1% over last year, matching average economist expectations. This represents the fastest pace of annual wage gains since April 2009. Month over month, the pace of gains was 0.2%, also in line with expectations.
With the labor market continuing to tighten, “Nothing in this report will make the Fed think that skipping the (December) hike is a good idea,” Shepherdson said.
President Donald Trump commented on the jobs report in a tweet Friday, calling the results “incredible” and touting the Republican Party ahead of midterm elections. Trump has recently taken to Twitter to opine on markets and the economy in advance of elections. Earlier this week, he urged people not to vote for Democratic candidates if they wanted to extend the bull market.
Wow! The U.S. added 250,000 Jobs in October – and this was despite the hurricanes. Unemployment at 3.7%. Wages UP! These are incredible numbers. Keep it going, Vote Republican!
— Donald J. Trump (@realDonaldTrump) November 2, 2018
The trade deficit in September widened to $54 billion from an upwardly revised $53.3 billion August, the Bureau of Economic Analysis reported Friday. The goods deficit increased $0.6 billion in September to $77.2 billion, while the services surplus narrowed by $0.1 billion to $23.2 billion.
Factory orders in September rose 0.7% in September to mark the fourth increase in the last five months, the Census Bureau said in a report Friday. This outpaced expectations of a 0.5% increase, according to data compiled by Bloomberg. Factory orders in August were upwardly revised to a rate of increase of 2.6%. New orders for manufactured durable goods increased 0.7% in September, down from 0.8% in August.
STOCKS: Apple takes a tumble
Shares of Apple (AAPL) tumbled after the tech giant offered disappointing sales guidance in advance of the key holiday season and said it will stop disclosing a key metric to track device demand. The company said it will no longer be reporting unit sales for iPads, Macs and iPhone, kindling fears of dampened demand for Apple’s most important products. The company projects total revenue for the first quarter to be between $89 billion to $93 billion, slightly below consensus estimates of $93.02 billion. Bank of America Merrill Lynch downgraded Apple’s stock to neutral from buy following the report and lowered the 12-month price target to $220 from $235.
Apple sold 46.9 million iPhones in the fourth quarter at an average selling price of $793, while analysts sought 48.4 million iPhones in the period and an ASP of $729. Apple beat on the top and bottom lines for the fourth quarter, with profit of $2.91 per share on revenue of $62.9 billion versus consensus expectations of $2.78 per share on revenue of $61.4 billion. Shares of Apple declined 6.63% to $207.48 each as of as market close Friday.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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