Daily Markets: What Does ADP's Report Say About the Jobs Market?

Today’s Big Picture

Asia-Pacific equity markets finished the day higher except for China’s Shanghai Composite which fell 0.11%. South Korea’s KOSPI closed essentially flat, up 0.04% while Taiwan’s TAIEX rose 0.19% India’s SENSEX gained 0.52%, Hong Kong’s Hang Seng advanced 0.83%, and Australia’s ASX All Ordinaries added 1.61%. Japan’s Nikkei closed 2.04% as semiconductor chip companies had a strong day. Major European markets are up across the board in midday trading, and U.S. equity futures point to a positive open.

This morning brings the first look at November job creation and wage data courtesy of ADP’s (ADP) National Employment Report, released this morning. It showed that companies added 103,000 workers for November, below the 128,000 Dow Jones estimate. The report also showed a 5.6% increase in annual pay, which ADP said was the smallest gain since June 2021.

The question investors will be looking to answer is whether the job market is losing steam faster than expected, especially after the wide miss relative to expectations in yesterday’s October JOLTs Job Openings report. While a slowing job market would support the soft landing narrative for the market, steeper-than-expected declines in ADP’s November data and Friday’s November Employment Report could flash warning signs for the vector and velocity of the economy. The former scenario would help support a year-end market rally, but the latter would give traders and short-term investors reasons to lock in November market gains.

Data Download

International Economy

Factory orders in Germany declined 3.7% month-over-month in October, following an upwardly revised 0.7% rise in September, and compared to forecasts of a 0.2% gain.

Retail sales in the Euro Area increased by 0.1% MoM in October, breaking a four-month streak of declines or stagnant growth but fell short of market expectations of a 0.2% rise. On a YoY basis, October retail sales decreased by 1.2%, the third consecutive month of contraction, and compared with market expectations of a 1.1% decline.

Domestic Economy

In addition to ADP’s take on November job creation, the final readings for Productivity and Unit Labor Costs for 3Q 2023 will be published at 8:30 AM ET. Productivity for the quarter is expected to clock in at 4.9%, while the final view on 3Q 2023 Unit Labor Costs is -0.9%.

We also have the usual Wednesday data, which includes fresh weekly data for the MBA Mortgage Applications Index. Ahead of the weekly EIA crude oil inventory report, the American Petroleum Institute found a build of 594,000 barrels of oil in U.S. commercial stockpiles for the week ending December 1, while gasoline inventories reportedly showed a build of 2.8 million barrels for the week.

Markets

Equities ended the day lower as the new jobs report came in much lower than expected, causing concerns over the state of the employment market to overshadow any optimism regarding potential Fed rate moves. All sectors were down except for Technology (0.60%) and Consumer Discretionary (0.18%) which were buoyed by their respective Magnificent Seven constituents. Energy (-1.75%) and Materials (-1.37%) led the way lower. The Nasdaq Composite was the only broad index to post a gain, up 0.31% while the S&P 500 (-0.06%) ended the day flat, the Dow fell 0.22% and the Russell 2000 closed down 1.38% giving back some of its recent gains.

In individual names, shares of Charter Communications (CHTR) fell 8.70%, contributing to just over 80% of Communications Services 0.46% decline, after the company CFO stated that she saw “negative” net new broadband customers in Q4.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: 8.98%
• S&P 500: 18.95%
• Nasdaq Composite: 35.96%
• Russell 2000: 5.38%
• Bitcoin (BTC-USD): 165.81%
• Ether (ETH-USD): 91.46%

Stocks to Watch

Before U.S. equity markets begin trading today, Brown Forman (BF.B), Campbell Soup (CPB), Korn/Ferry (KFY), Ollie’s Bargain Outlet (OLLI), Thor Industries (THO), and United Natural Foods (UNFI) are scheduled to report their latest quarterly results.

Pre-Market breadth is seeing 235 names of the S&P 500 trade hands so far this morning with 185 gainers and 50 decliners. Names seeing a healthy bid include Marathon Petroleum (MPC), Albemarle Corporation (ALB), and PNC Financial (PNC) while Yext (YEXT), Box (BOX), and MongoDB (MDB) are under pressure this morning following weaker-than-expected guidance.

Despite revenue falling 18.6% YoY for its October quarter, homebuilder Toll Brothers (TOL) crushed consensus EPS expectations for the period. The company delivered 2,755 homes, down 27% but ahead of its 2,650 - 2,750 unit guidance for the quarter. For the current quarter, Toll sees deliveries of 1,800-1,900 units and 9,850-10,350 units for the current fiscal year. Helping drive that volume of homes, management expects the company’s community count to increase about 10% in fiscal 2024 from the 370 communities it operated at the end of fiscal 2023.

October quarter results topped expectations at SentinelOne (S) and the company guided current quarter revenue ahead of consensus expectations. In its shareholder letter, management commented that, "In the age of AI and modern cyberwarfare, the velocity and complexity of attacks are rising. A slew of recent high-profile attacks showcases the enormous consequences of breaches—costing hundreds of millions of dollars, lost business, and disruption…". The company also boosted its FY2024 revenue outlook to $616 million from the prior view of $605 million and the $605.2 million consensus.

Dave & Buster’s (PLAY) reported mixed October quarter results with EPS slightly ahead of the consensus forecast while revenue for the period fell 3.0% YoY to $466.9 million, missing the $472.25 million consensus. Pro forma combined comparable store sales (including Main Event branded stores) decreased 7.8% YoY.

The CEOs of Wells Fargo (WFC), Bank of America (BAC), JPMorgan (JPM), Citigroup (C), State Street (STT), BNY Mellon (BK), Goldman Sachs (GS), and Morgan Stanley (MS) will appear before the Senate Banking Committee today warning the "Basel III endgame" proposal, which would increase capital requirements by 20%-25% for the largest banks will hurt the economy and hamper lending. Regulators in July proposed strengthening regulations by requiring large U.S. banks to set aside more capital to absorb potential losses. Banks repeatedly slammed the proposal, saying this is not justified as they are well-capitalized.

Mastercard (MA) boosted its quarterly cash dividend to $0.66 per share from $0.57 and announced its Board approved a new $11 billion share repurchase program.

Shares of Five9 (FIVN) were falling in after-market trading last night following reports Zoom Video (ZM) is not interested in a renewed bid for the call center software provider.

McDonald’s (MCD) holds an investor event today where is expected to discuss its recent corporate restructuring, accelerated expansion plans, and digital strategy. We are also likely to hear its thoughts on California’s AB 1228, which sets a $20 minimum wage for fast-food workers starting on April 1, 2024.

IPOs

Readers who want to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

C3.ai (AI), ChargePoint (CHPT), Chewy (CHW), Couchbase (BASE), Descartes (DSGX), GameStop (GME), Sportsman’s Warehouse (SPWH), Sprinkler (CXM), and Verint Systems (VRNT) are slated to report their quarterly results after equities stop trading. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Thursday, December 7

• China: Imports/Exports – November
• Japan: Leading Economic Index (Preliminary) – October
• Germany: Industrial Production – October
• Eurozone: 3Q 2023 GDP (3^rd Estimate)
• US: Challenger Job Cuts Report – November
• US: Weekly Initial & Continuing Jobless Claims
• US: Wholesale Inventories – October
• US: Weekly EIA Natural Gas Inventories
• US: Consumer Credit – October

Friday, December 8

• Japan: GDP (Final) – 3Q 2023
• Germany: Inflation Rate (Final) – November
• US: Employment Report – November
• US: The University of Michigan Consumer Sentiment Index (Preliminary) – December
• US: Used Car Prices - November

Thought for the Day

“Be nice to the people on the way up, because you may meet them on the way down.” ~ Jimmy Durante

Disclosures

• Ollie’s Bargain Outlet (OLLI) is a constituent of the Tematica BITA Big Spenders & Savers Index

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks Economy Jobs & Unemployment Central Banks Smart Investing