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Profit from the Pros By Kevin Matras Executive Vice President
Stocks End Mostly Lower To Start The Week, All Eyes On Friday?s Jobs Report
The big three indexes closed lower yesterday, led by the Nasdaq which fell by -0.84%. The small-cap Russell 2000 and the mid-cap S&P 400, however, both closed higher by 1.04% and 0.78%.
After 5 up weeks in a row, there was bound to be some profit taking, and we saw some of that yesterday. But not so much for the small and mid-caps.
News that Uber would be added to the S&P 500 on December 18, before the open, sent shares higher. Jabil and Builders FirstSource will also be added. They will replace Sealed Air Corp., Alaska Air Group, and SolarEdge, which will be moving over to the S&P 600 small-cap index.
There were other changes announced for the S&P 400 mid-cap, and S&P 600 small-cap as well. The S&P Dow Jones Indices press release stated that the additions to the indexes were being made as those stocks are more representative of their respective market-cap space.
In other news, yesterday's Motor Vehicle Sales came in at 15.3 million units (annualized) vs. last month's 15.4M and views for 15.5M.
And Factory Orders fell by -3.6% m/m vs. last month's 2.3% and the consensus for -2.6%.
Today we'll get the PMI Composite report, the ISM Services Index, and the Job Openings and Labor Turnover Survey report (or JOLTS for short).
It will be a big week of jobs numbers as we'll then get the ADP Employment report on Wednesday. And the Weekly Jobless Claims, and Challenger Job-Cut Report on Thursday.
But the jobs report everybody is really waiting for is Friday's Employment Situation report. The Fed watches the unemployment rate as a proxy for the economy, and average hourly earnings as a barometer for inflation (wage inflation).
Earlier this year, Mr. Powell remarked with seeming incredulity (given the Fed's historic rate hike cycle), that rates have risen to 5% while the unemployment rate is still so low.
Recently, however, the red hot jobs market has cooled, but has still remained strong. And wage inflation has moderated. Both of those developments have been cheered as it shows the Fed's rate hikes have had an impact and that they might be ready to call it quits when they meet next week on December 12-13.
As it stands now, Fed Funds traders have placed a 97.2% probability that the Fed will leave interest rates unchanged next week, making it their 3rd pause in as many meetings.
But what investors really want to hear about is the size of potential rate cuts next year, and when they'll start. While the Fed has said they expect to cut rates by -50 basis points in 2024, many analysts are expecting them to cut by -125 basis points, with some even looking for as much as a -275 basis point cut.
Although, we first have to get thru Friday's jobs report.
The Q4 rally has been firing on all cylinders.
With 4 more weeks left in the year, and momentum on the upswing (yesterday notwithstanding), it looks like there's plenty more upside to go.
So make sure you're taking full advantage of it.
See you tomorrow,
Executive Vice President, Zacks Investment Research
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