Market Update: Fri, Dec 7, 2018 | LPL Financial Research

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Daily Insights

Are we forming a triple bottom? Yesterday’s reversal occurred at significant support for the S&P 500 Index, marking the third time since October that stocks have tried and failed to close below 2630. This, combined with a number of elevated sentiment indicators, increases the odds of stocks moving higher in our view. Later today on the LPL Research blog, we take a closer look at whether yesterday may have been the final washout in the bottoming process.

Big reversal. Stocks were down well over 2% in the morning, then staged a big reversal in the afternoon. The Dow was actually down more than 750 points at one point for consecutive days for the first time in history. The good news is it closed down only 79 points, for a 705 point jump off the intraday lows – the 8th largest move off the lows. The S&P 500 was down 2.9% at the lows and closed down only 0.2%. You have to go clear back to May 2010 the last time we saw a percentage move like that off the lows. Lastly, the Nasdaq was down 2.4% and closed positive. You have to go back 10 years the last time that happened.

November payrolls miss estimates. Nonfarm payrolls increased by 155K last month, below consensus expectations for 198K but still a very respectable number, particularly at this point in the business cycle. The overall unemployment rate held steady at 3.7% (lowest since 1969), as did the labor force participation rate (62.9%). The manufacturing sector sustained recent strength, adding 27K jobs, while construction (+5K) saw its weakest growth since March. Wages grew 0.2% month over month in November, while October was revised down 0.1% to +3.1% year over year, unchanged from the prior month’s reading. Overall the data paint a picture of a healthy U.S. labor market, but not one that would spur a more aggressive Fed.

OPEC, allies reach production cut deal. WTI crude oil prices are rallying after reports out this morning indicated OPEC and its allies agreed to curtail production by 1.2M barrels per day (bpd), a figure at the higher end of the 0.5-1.5M bpd range that had been discussed. Iran was reportedly able to secure exemptions as it deals with strict U.S. sanctions, while Russia, which had been noncommittal ahead of the talks, agreed to cut ~230K bpd. The cuts, led by Saudi Arabia, come amid political pressure from President Donald Trump to keep prices from ramping back up too much. The deal will be reviewed in April and has provided a near-term boost for oil, but the U.S.’ ability to quickly ramp up production levels suggests a scenario where prices getting back into the mid-$70 range is unlikely over the next ~12 months.

U.S. services sector still humming along. ISM’s November non-manufacturing index came in at 60.7, better than consensus for 59.2 and rebounded modestly from October’s 60.3. Business activity increased for the 112th consecutive month as order backlogs fell and new orders and inventories rose. Survey participants continued to highlight concerns about tariff impacts and transport capacity shortages, but expressed stable-to-positive views on the overall business environment. Elsewhere, Markit’s November services PMI aligned with ISM data, coming in at 54.7, topping October’s level and consensus expectations (both 54.4). The Markit data was also highlighted by new order expansions and robust business activity as new export orders increased at the fastest rate since May.

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Friday

  • University of Michigan Sentiment Index (Preliminary, Dec)
  • Jobs Report (Nov)
  • Japan Leading Index (Oct)
  • Germany Industrial Production (Oct)
  • Eurozone GDP (Q3)

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