Jobs reports this week are what to watch for!
Here’s a trading analysis for the major U.S. indices on December 2, 2024:
Dow Jones Industrial Average (DJIA)
- Performance: The Dow rose down modestly from its all-time highs. Industrial and financial stocks seem to be getting the most attention.
- Volume: Trading volume was a non-event.
- Sentiment: Optimistic, with bullish undertones as economic data supported expectations of steady growth.
NASDAQ Composite
- Performance: The NASDAQ saw slight gains as large-cap tech stocks were mixed. AI and chipmakers led the index higher, while some overvalued tech names faced selling pressure.
- Volume: Volume was consistent with historical norms, with notable interest in semiconductors and growth-oriented sectors.
- Sentiment: Neutral to mildly bullish, with sector-specific enthusiasm.
S&P 500
- Performance: The S&P 500 set another record level, buoyed by consumer discretionary and healthcare sectors.
- Volume: Trading volume was slightly lower than usual, indicating a cautious but positive investor sentiment.
- Sentiment: Bullish, as investors remain optimistic about broader economic recovery.
Russell 2000 (Small Cap Index)
- Performance: The Russell 2000 fell slightly by 0.07%, indicating some consolidation after a strong November rally. Despite this, it remains up nearly 13.8% over the last 90 days.
- Volume: The index experienced lighter trading compared to its average, suggesting a lack of conviction in the current direction.
- Sentiment: Mixed, as investors weigh concerns about rising costs against potential growth opportunities in smaller companies.
Market Breadth and Other Metrics
- New Highs vs. New Lows: Across the indices, new stock highs outpaced new lows, signaling overall bullish market momentum. However, the Russell 2000 saw a more balanced breadth, reflecting sector rotation.
- Sentiment Indicators: Bullish indicators dominated, with investor confidence bolstered by stable economic data and easing inflation concerns.
My take:
This bull market remains intact. Watch the 10-year treasury yield. It has become much more stock market friendly over the past week or so. But if it goes over 5%, it could spell overall trouble for stocks down the road.
The Federal Reserve and the jobs report this week
Although it doesn’t often make headlines in financial news, today’s job openings are an important metric closely monitored by the Federal Reserve. Many may not realize that just 2–3 years ago, there were approximately two job openings for every job seeker. This imbalance contributed significantly to the surge in labor costs, which was one of several drivers of inflation.
Today, the situation has reversed: there is approximately one job opening for every job seeker. This shift indicates a much weaker labor market. Managing this transition is part of the Federal Reserve’s efforts to navigate economic challenges and stabilize inflation.
Job Openings Ratio (2:1 to 1:2)
- During the height of the labor shortage in 2021 and early 2022, the ratio of job openings to job seekers did approach 2:1, as confirmed by the Job Openings and Labor Turnover Survey (JOLTS). This tight labor market significantly increased wages.
- The latest data indicates a cooling in job openings, with the ratio closer to 1:1 or slightly below, depending on the exact figures for job seekers and openings as reported by the Bureau of Labor Statistics.
Weaker Labor Market
- A reduction in the ratio of job openings to seekers does indicate a softer labor market. However, the Federal Reserve also examines other indicators, such as unemployment rates, labor force participation, and wage growth trends.
Federal Reserve’s Role
- The Fed monitors labor market conditions closely to anticipate inflationary pressures, which are influenced by wage growth and employment demand. The statement about the Fed “trying to stay ahead of this curve” is accurate in terms of its strategy to balance employment with price stability.