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Dow Jones Today: Jobs and the Fed

Todd Shriber

Stocks traded modestly higher to close the week, supported by comments from Federal Reserve Chairman Jerome Powell following a disappointing August jobs report.

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Before the open of U.S. markets Friday, the Labor Department said the U.S. economy had added 130,000 new jobs last month, well shy of economists’ average forecast of around 160,000 and well below the 2019 monthly average of 158,000 new jobs. Adding to that disappointing report, skeptics will correctly say that 25,000 of the jobs added last month were temporary jobs related to the 2020 census.

Speaking at a conference of the Swiss Institute of International Studies in Zurich, Switzerland,  Powell said the U.S. labor market remains strong. But investors still believe the Fed can lower rates by another 0.25 percentage points at its next meeting.

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“For a year and a half we’ve been at half-century lows in unemployment,” said the Fed chairman. “We’ve got higher labor-force participation, we’ve got wages moving up, by so many measures the labor market is in a good place. I think today’s labor market report is very much consistent with that story.”

Fed funds futures are pricing in a 94% chance of an interest rate reduction when the central bank meets later this month.

The Nasdaq Composite fell 0.17% to close the week while the S&P 500 added 0.09%. The Dow Jones Industrial Average finished the day with a gain of 0.26%. In late trading, just over two-thirds of the Dow’s 30 members were trading to the upside.

Leadership

Intel (NASDAQ:INTC) , up 1.60%, was one of the best-performing names in the Dow today, extending a nice run for semiconductor stocks,. Today’s strength in Intel can be viewed as follow through of gains triggered by comments from Intel executive Jason Grebe earlier this week. Grebe cited some uptick in data center spending, something analysts seemed to confirm.


“Overall we forecast Intel’s [data center group] to grow 20%+…in 2H19 (versus 1H19), which is well supported by Intel commentary earlier today as well as our cloud capex tracker that is indicating spending could surge 29% (in 2H19) after a weak 1H,” said Bank of America Merrill Lynch analyst Vivek Ary.

Don’t Expect Much

Apple (NASDAQ:AAPL) traded modestly higher, extending a solid run for the iPhone maker. But speaking of the iPhone, investors should temper expectations of earth-shattering revelations coming from Apple’s upcoming iPhone reveal. The California-based company will hold a new product launch gathering next Tuesday.

“Apple decreased in position size to the lowest level since [January] 2016, which reflects unwarranted near term pessimism,” said Bank of America Merrill Lynch analyst Wamsi Mohan in a recent note. “We view AAPL ownership and weightings as reflective of lack of excitement around an imminent product cycle and concerns around trade impact.”

Expect Something, Though It May Not Be Good

Yesterday, I highlighted the strength of the financial services components of the Dow Jones Industrial Average. Some of that blush came off the rose today, due in large part to expectations that the Fed is cruising toward another rate cut. Dow component JPMorgan Chase (NYSE:JPM), the largest U.S. bank by assets, was modestly higher in late trading despite some tepid analyst commentary.

Research firm KBW cut its price target on JPM to $121 from $134, stoking some elevated bearish options activity in the name.

Extra Cash

With interest rates declining, the case for dividend stocks grows increasingly compelling. Verizon Communications (NYSE:VZ) made its shares more attractive by raising its quarterly dividend 2% to 61.50 cents a share from 60.25 cents.

That takes Verizon’s annual dividend to $2.46 a share and gently boosts its yield to 4.16% from 4.11% based on today’s close around $59. This is the 13th straight year in which Verizon has raised its dividend.

Bottom Line

With the trade front quiet today, fair news on the labor market  and the Fed setting the stage for another rate cut, market participants may start shifting their attention to other matters, namely earnings. That’s poised to be a touchy subject.

“Given these concerns, are S&P 500 companies with higher global revenue exposure expected to underperform S&P 500 companies with lower global revenue exposure in terms of earnings growth and revenue growth in Q3 2019?,” according to FactSet. “The answer is yes. S&P 500 companies with higher global revenue exposure are expected to report year-over-year declines in earnings and revenues in Q3 2019, while S&P 500 companies with lower global revenue exposure are expected to report year-over-year growth in earnings and revenues in Q3 2019.”

As of this writing, Todd Shriber does not own any of the aforementioned securities.

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