Friday saw stocks staying close to the flat line as traders analysed a solid employment data that left them divided on whether to expect rate cuts from the Federal Reserve in the next year or to hold onto prospects for a robust economy.
26 points, or 0.1%, were added to the Dow Jones Industrial Average. The Nasdaq Composite edged lower by 0.1% while the S&P 500 was flat.
Sentiment was negatively impacted by an increase in yields following the surprise decline in the unemployment rate shown in November’s nonfarm payrolls data. The yield on the 10-year Treasury increased by 10 basis points to 4.23%. (Equal to 0.01% is one basis point.)
In November, the unemployment rate decreased from 3.9% to 3.7%. That was supposed to stay that way. The economy created 199,000 jobs, which was far more than the 150,000 jobs created in October and just somewhat more than the 190,000 jobs predicted by Dow Jones.
The initial fears expressed by the data were that the economy was becoming too hot for inflation to decrease to the point where the Fed could begin to reduce its high-rate policy. As early as March, according to some speculators, the Fed may begin reducing rates.
However, there is also a chance that the monthly jobs data may bolster the idea that the Fed is steering the American economy in the direction of a “soft landing,” or a gradual recovery in the face of decreased inflation. Given that November saw more job additions than October, average hourly wages—which are considered a leading sign of inflation—rose roughly as predicted.
“Those who are advocating for a gentle landing have the facts to back them up right now. The only thing to keep in mind is that the economy might not be ready for a landing at all because it is still in the air,” stated FwdBonds head economist Christopher Rupkey. It remains to be seen if this prolonged expansion and moderate job creation can rekindle inflationary pressures and push Federal Reserve policymakers to maintain higher interest rates.
Source (CNBC)
