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Benchmarks ended in the green on Friday, after robust nonfarm payrolls data lifted investor sentiment. Investors are now focusing on the fast recovering U.S. economy instead of worrying about the Federal Reserve’s proposed tapering of its stimulus program. This also marked the end of five consecutive days of losses for the Dow and the S&P 500, though both ended lower for the week. The Street received another encouraging report, which showed that consumer sentiment has jumped to its highest level in five months. All the sectors in the S&P 500 industry groups ended in the green as well, with the industrials sectors leading them all.
The Dow Jones Industrial Average (DJI) gained about 1.3% to close the day at 16,020.20. The S&P 500 rose 1.1% to finish Friday’s trading session at 1805.09. The tech-laden Nasdaq Composite Index increased 0.7% to end at 4062.52. The fear-gauge CBOE Volatility Index (VIX) dropped 8.6% to settle at 13.79. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.2 billion shares. Advancing stocks outnumbered the decliners. For 70% shares that advanced, only 28% declined.
The unemployment rate decreased from 7.3% to 7.0% in November. Total non-farm payroll employment increased 203,000 in November, higher than the consensus estimate of 182,000. Employment in transportation and warehousing increased by 31,000. The health care sector added 28,000, new jobs, although nursing care facilities lost 4,000 jobs. Manufacturing added 27,000 jobs, professional and business services jobs edged up by 35,000 jobs and retails trade added 22,000 jobs. Jobs at food services and drinking places increased by 18,000 while construction added 17,000 jobs.
Market watchers had previously anticipated that the Federal Reserve would begin tapering its stimulus program in March. Such expectations were strengthened following earlier announcements that it would reduce its bond purchases only when certain economic indicators were at desired levels. This included a significant decline in the unemployment rate. The nonfarm payrolls report supports expectations that the economy has recovered to the point where it can withstand reductions in Fed bond purchases.
The U.S. Department of Commerce released personal income and consumption
expenditures numbers. Personal income decreased by $10.8 billion, or 0.1%, whereas
disposable personal income (DPI) decreased $23.6 billion, or 0.2% in October.According
to the Bureau of Economic Analysis, Personal Consumption Expenditure (PCE) increased
$32.7 billion, or 0.3%. Real disposable personal income declined 0.2% in October, in
contrast to an increase of 0.4% in September. Real PCE increased 0.3% in October, compared
with an increase of 0.1% in September.
According to the Board of Governors of the Federal Reserve System, consumer credit increased
at a seasonally adjusted annual rate of 7% in October. Total Consumer Credit came in at $18.1
billion. This was higher than the consensus estimate of $15 billion, and wider than September’s
value of $16.3 billion. Revolving credit increased at an annual rate of 6%, while non-revolving
credit increased at an annual rate of 7.5%.
Meanwhile, consumer confidence increased to 82.5 in December from November’s figure of 75.1
according to Thomson Reuters and the University of Michigan. This was above the consensus
estimate of 75.8. It was the highest level for consumer confidence in five months, diminishing
concerns about household spending getting in the way of the holiday-shopping season.
Increase in employment, property values and stock portfolios are providing positive
support to consumer confidence.
The industrials sector was the biggest gainer among the S&P 500 industry groups on Friday. The Industrials SPDR (XLI) gained 1.5%. Stocks such as General Electric Company (NYSE:GE), The Boeing Company (NYSE:BA), United Technologies Corporation (NYSE:UTX), 3M Co (NYSE:MMM), and Union Pacific Corporation (NYSE:UNP) increased 1.9%, 1.9%, 1.9%, 1.4%, and 1.2%, respectively.