It’s all about the Fed. A strong jobs report on Friday sent stocks down early in the day, before buyers came back later on. The Labor Department said October non-farm payrolls grew by 271,000, well above expectations of 185,000 along with an upward revision in the September numbers and a robust rise in average hourly earnings. The unemployment rate ticked down to 5%, and traders are now betting the Federal Reserve will likely raise short-term interest rates by 0.25% at next month’s meeting. The “good” economic news and the related “fear” of a rate hike sent dividend paying stocks into a nose-dive along with Treasuries, as interest rates on the ten-year note closed Friday at 2.33%. Utility stocks plummeted loosing 3.67% on average for the week, about equal to a year’s worth of dividend yield. Telecoms didn’t fare much better, off nearly 2% as such industries serve as a proxy for bonds. The dollar rose sending oil prices down for the ride and gold fell $54/oz. The one bright spot was financials up nearly 2.5%; the thinking being higher interest rates will help the bottom line for banks. REITS, however, were weak on the prospect and consumer staple stocks failed to participate on the heels of the strong dollar. Despite lower oil prices, energy stocks moved higher as traders continued to see some value in oversold conditions for some of the better-named drillers and oil service providers. The sector has outperformed the market for the past several weeks rising more than 20% since their August lows. For the past five trading sessions, the Dow was higher by nearly 1.5%, thanks in part to Goldman Sachs and JPMorgan Chase. The broader market moved ahead by one percent, with the S&P 500 closing at just under 2,100. The NASDAQ and the small-cap Russell 2000 advanced a healthy 2% and 3.25%, respectively. Looking ahead, Friday’s retail sales for October are expected to show a modest increase over September’s strong numbers. Better results than estimates may indicate improved consumer sentiment and, again, factor in on the Fed’s monetary policies. On Wednesday, bond markets will be closed in observance of Veteran’s Day, but equities will remain open for trading.
Here is the answer to last week’s trivia question: The closely watched Consumer Price Index (or CPI) measures the change in the price of a market basket of consumer products and services in order to help measure the rate of inflation. The “Core CPI”, however excludes what two more “volatile” items? Food and Energy, Energy and Housing, Autos and Housing or Food and Utilities. Answer: Food and Energy.
Today’s Trivia Question: In 1982, U.S. regulators broke up AT&T requiring the company to divest its regional Bell telephone companies, with AT&T maintaining the long-distance, Western Electric and Bell Labs businesses. In 2005, which of the “Baby Bells” acquired AT&T and subsequently assumed its iconic name? NYNEX, Southern Bell, Pacific Northwest Bell or Southwestern Bell.