Wednesday brought fresh signs of softening in the labor market, as the ADP gauge on private payrolls missed expectations, finding that 103,000 jobs were added in November.
That came after Tuesday's soft reading on jobs openings bolstered optimism for a Fed pivot to cutting interest rates. Markets are pricing in at least 100 basis points of cuts next year. But doubts about policy remain, with strategists warning those bets look "overdone."
Oil prices hit a five-month low on Wednesday as new data showed further signs of weak demand. West Texas Intermediate (CL=F) fell 4%, settling at $69.38 per barrel. Brent (BZ=F) crude, the international benchmark price, was down more than 3.6%, closing at $74.30 per barrel level.
Meanwhile, bitcoin (BTC-USD) briefly surged past $44,000 as more retail investors dived in and embraced hopes for rate cuts and coming spot bitcoin ETFs. The leading digital asset has since given up those gains, coming off notching a six-day win streak, its longest since May, on Tuesday.
Stocks slide on Wednesday
Stocks fell throughout the afternoon on Wednesday as investors looked to data that signaled more cooling in the labor market.
Oil settles at lowest level since June
Oil prices continued their track lower on Wednesday, falling roughly $25 from their September highs.
New data from The Energy Information Administration on Wednesday showed gasoline stockpiles rising by more than 5 million barrels last week versus estimates of a build of 1.3 million. Even though a rise in fuel inventory is expected at this time of year, the outsized level points to weakness in demand.
Crude prices had opened lower on Wednesday prior to the release of the EIA data on concerns of oversupply and weaker demand. Moody's gave China's credit rating a downgrade warning on Tuesday as concerns about the country's economic growth mount.
“Economic numbers from China are showing a further slowdown as Asian refinery run rates continue to drop with Saudi cutting cash crude prices for next month to China,” said Dennis Kissler, senior vice president at BOK Financial's trading division. He also noted that seasonally, oil prices tend to decline in late December.
Meanwhile, ADP employment data released Wednesday showed an increase of 103,000 jobs in the US last month, compared to expectations of 130,000. The prior month’s add-ons were revised down to 106,000 jobs, versus 113,000 previously reported.
A weaker US job market points to lower demand amid an economic slowdown.
Why a call for 5,100 on the S&P in 2024 may not be that bullish
One of Wall Street's most bullish strategists headed into 2024 doesn't actually see his stance as that bullish.
Deutsche Bank's chief US equity strategist Binky Chadha sees the S&P 500 hitting 5,100 by the end of 2024, even with the economy fighting through a mild recession. If the US once again skirts recession, there's even more upside, per Chadha, and the S&P 500 could hit 5,500.
"I would argue that neither is as bullish as it sounds," Chadha said through a smirk at a 2024 outlook media roundtable on Wednesday.
Chadha titled his 2024 outlook "solid fundamentals, poor perceptions," a nod to the consistent clamoring an economic slowdown is coming despite companies largely holding up OK over the past year. To Chadha, the recession some have dubbed as one of the most anticipated ever is already baked into the market and any sell-off would be "short lived."
Key to Chadha's call is his belief that the current view on earnings is skewed. Using year-over-year comparisons Chadha notes that earnings just came out of several quarters of negative growth during the most recent quarter. But when comparing earnings growth quarter over quarter, which Chadha prefers, earnings have actually been accelerating through all of 2023.
In Chadha's terms, he notes earnings have grown about 11.5% this year through the third quarter. Next year's projection for $250 in earnings per share would reflect just under 10% growth in earnings for the year.
"Things are not really going anywhere," Chadha said. "This is actually a pretty run-of-the-mill forecast. It's just the belief is so negative that it sounds bullish."
To Chadha, where the bullishness could come in would be if the economy once again surprises to the upside in 2024. If the economy grows closer to a 2% annual rate in 2024, that would push his S&P 500 EPS call to about $270, resulting in the S&P 500 sitting at 5500.
The chart below from Deutsche Bank shows how the economic forecast would impact their call on earnings and, therefore, the S&P 500 next year.
Google launches new generative AI model
Shares of Alphabet and Microsoft were both lower by less than 1% Wednesday after Google launched a new generative AI model solution.
Google (GOOG, GOOGL) on Wednesday debuted its new Gemini generative AI model. The platform serves as Google’s answer to Microsoft-backed (MSFT) OpenAI’s GPT-4, and according to DeepMind CEO Demis Hassabis, it's the company’s “most capable and general model” yet.
Gemini is what is referred to as a natively multimodal model, meaning it can analyze text, audio, video, images, and code. While other multimodal offerings exist, Google says Gemini stands apart because the model was designed to take all of those mediums into account from the beginning.
Other platforms, the company said, train separate models to tackle things like text, video, and photos and then string them together into a single model.
This difference, according to Hassabis, means that Gemini can better understand multimodal data and produce better results for everything from handwritten content to images and videos.
As part of the announcement, Google released a series of videos demonstrating Gemini’s capabilities. In one video, a presenter showed a program running Gemini with a drawing of a blue duck as well as a rubber blue duck, both of which the AI was able to identify.
In another demonstration, the presenter showed the AI a hand-drawn picture of a roller coaster without a loop and another one with a loop. When the presenter asked which one is likely more fun, the AI said the one with the loop, which is the right answer unless you hate going around loops or on roller coasters in general.
Another example showed how parents can use Gemini to help their children with their homework. Not only is the AI able to read a student’s written answers to math questions, but it is also able to tell if they are correct or not and explain where the student went wrong and why.
It's a risk-on day in some areas of the market
Broadly, the major stock indexes are flat today and Big Tech isn't catching much of a bid either.
But a quick look at the Yahoo Finance trending tickers page shows us some of the more speculative trades in the market are catching investor attention today.
Looking at broader areas of the market, Roundhill's meme ETF (MEME) is up nearly 2% on Wednesday while S&P's regional banking ETF (KRE) is up more than 1% and Cathie Wood's flagship Ark Innovation Fund had been up more than 2% at one point during the trading session.
US stocks flat as yields fall
Markets hugged the flatline as their bid to rebound lost momentum by midday trading.
The tech-heavy Nasdaq Composite (^IXIC), benchmark S&P 500 (^GSPC), and Dow Jones Industrial Average (^DJI) all traded flat after the ADP gauge on private payrolls missed expectations, with just 103,000 private payroll jobs added compared to the expected 110,000.
Gas prices hit lowest level since January
US crude oil moved 4% lower on Wednesday to trade below $70 a barrel, a five-month low, as gas prices hit their lowest level in nearly a year.
According to AAA, gas prices hit $3.22 a gallon on average, the lowest level since Jan. 3. That price is also down from $3.42 a month ago and $3.38 one year ago.
Brent crude, the global benchmark, also declined about 4% to trade below $75 a barrel.
A recent note from Citi said energy stocks will likely face further challenges next year, citing downward pressure from spare oil capacity.
As reported by Yahoo Finance's Ines Ferré, spare capacity, defined by the Energy Information Administration, is an estimate of the volume of oil production that can be brought online quickly and sustained for at least three months. Essentially, it's a country's ability to dial up oil production if needed.
Oil is down about 4% year to date, despite recent efforts by the Organization of the Petroleum Exporting Countries and their allies — known as OPEC+ — to maintain a pricing floor through supply reductions.
Returning strikes to boost November jobs report
"We expect the November employment report to show an acceleration in job growth, driven by the return of striking UAW and SAG-AFTRA workers," wrote Nancy Vanden Houten, lead US economist at Oxford Economics. "The return of striking workers will inflate the headline: We expect that the end of the United Auto Workers strike and the SAG-AFTRA strike will boost job growth by roughly 45,000. Adjusted for those two strikes, we estimate job growth of 160,000, down from 183,000 in October."
Employment in manufacturing decreased by 35,000 in October, reflecting a decline of 33,000 jobs in motor vehicles and parts "that was largely due to strike activity," according to the Bureau of Labor Statistics. This was the first time the auto strike's impact showed up in the monthly jobs report.
Coupled with jobs lost in the autos sector, employment in the motion picture and sound recording industries decreased by another 5,000 in October after falling by 7,000 in September and 17,000 in August, "reflecting the impact of labor disputes." Since May, which is when the writers strike first began, employment in those industries has declined by 44,000.
The United Auto Workers reached agreements with all of the Big Three Detroit automakers at the end of October, following 46 days on strike. SAG-AFTRA, the actors union, ended a 118-day strike on Nov. 9 following the conclusion of the five-month-long writers strike on Sept. 27.
"Looking through strike-related noise, we expect the jobs report to be consistent with softening labor market conditions, allowing the Fed to forego more rate increases. We continue to think rate cuts are still several months away," Oxford Economics added.
With job boom in restaurants 'behind us,' expect slower payroll growth in 2024
One of the largest contributors to the post-pandemic job market boom is cooling off.
New data from ADP released on Wednesday revealed the US added 103,000 private payroll jobs, below economists' expectations for 110,000 job gains. One of the largest lagging sectors of the job market proved to be leisure and hospitality, once an industry that couldn't find enough workers during the heat of the pandemic. The sector dropped 7,000 jobs in November.
“Restaurants and hotels were the biggest job creators during the post-pandemic recovery,” said Nela Richardson, chief economist at ADP. “But that boost is behind us, and the return to trend in leisure and hospitality suggests the economy as a whole will see more moderate hiring and wage growth in 2024.”
Wednesday's data comes in line with other signs that the labor market is normalizing from the pandemic. On Tuesday, the latest Job Openings and Labor Turnover Survey, or JOLTS report, released Tuesday revealed the ratio of job openings to the number of unemployed workers fell to 1.34, its lowest reading since August 2021. The unemployment rate has ticked higher over the last several months, rising from its several decade low, and employees haven't been fleeing the job at the same pace the "quiet quitting" craze in 2021.
Part of that could be because they aren't be rewarded as much for leaving. Further data from ADP shows annual wage growth for workers changing jobs fell to 8.3% in November, the slowest pace of growth since June 2021. Meanwhile, workers who kept the same job saw wages rise 5.6% last month, the least since September 2021. The reward for switching jobs is now its smallest in three years ADP has tracked the data point.
Stocks rise at the open
Stocks opened in the green on Wednesday after new data revealed cooling in the labor market.