Daily Markets: Will Employment and ISM Data Test Fed's Data Dependency?

Today’s Big Picture

Asia-Pacific equity markets finished the day lower except for India’s SENSEX, which rose 0.25%, and Japan’s Nikkei which gained 0.27% after Yen weakness boosted shares of exporters. Both Australia’s ASX All Ordinaries and Taiwan’s TAIEX fell just over 0.15%, South Korea’s KOSPI declined 0.35%, Hong Kong’s Hang Seng shed 0.66% and China’s Shanghai Composite closed 0.85% lower as debt management concerns continue to weigh on that market. European markets are mostly lower in midday trading.

U.S. equity futures point to a down market open later this morning, suggesting the market’s winning streak will be broken when trading for this shortened first week of 2024 ends. Economic data received so far this week has pushed back on the market’s expectations for six rate cuts this year. Weaker than expected guidance from companies has resuscitated valuation questions following the market’s pronounced move in November and December.

That shifting focus will square off against the December Employment Report, which showed 216,000 jobs added for the month, against expectations of 170,000. The unemployment rate held at 3.7%, when it was expected to tick up slightly to 3.8%. Later this morning, we'll get ISM’s December Services PMI at 10:00 AM ET. Stronger-than-expected data from either or both reports would build the case that the economy remains vibrant, adding credence the Fed doesn’t need to rush with rate cuts. 

ISM’s December Service PMI is expected to dip to a reading of 52.6 from 52.7 in November. Setting the stage for that report, yesterday S&P Global’s December Service PMI came in ahead of expectations, showing a pickup in employment and new order activity. S&P’s findings also called out higher input costs but tamer output price increases, something that should make margins a big topic in the upcoming 4Q 2023 earnings season. Inflation in the Service sector has been a focus of the central bank and will see investors pick through all of ISM’s findings.

Data Download

International Economy

Retail Sales in Germany decreased by 2.40% YoY in November.

The preliminary reading on the inflation rate in December for the Euro Area rose to 2.9% YoY, up from November’s two-year low of 2.4%, but below the market consensus of 3%. The core rate, excluding volatile food and energy prices, cooled to 3.4% in December 2023, the lowest since March 2022 and in line with market expectations.

Danish shipping giant Maersk (AMKBY) said it would extend its diversion of vessels from the Red Sea for the “foreseeable future” due to safety concerns amid a spate of attacks by Houthi militants.

Domestic Economy

In addition to the December Employment Report and the December Service PMI from ISM discussed above, at 10 AM ET November Factory Orders will be reported. The consensus forecast sees headline orders rising 2.1% MoM.

The Energy Information Administration reported U.S. commercial crude inventories for the week ending December 29 fell by a larger-than-expected 5.5M barrels. Still, gasoline stocks surged by 10.9M barrels, their highest weekly gain in more than 30 years, and distillate inventories jumped by 10.1M barrels, much more than forecast, while distillate product supplied - seen as a proxy for demand - fell to its lowest level since 1999.

Hospitals across several U.S. states, including those in New York, California, Illinois, and Massachusetts, have reimposed masking requirements for patients and staff amid a spike in COVID and flu infections.

Markets

Aside from Energy burning off 1.75%, equities had a relatively quiet day. Technology and Consumer Discretionary extended their current slump, down 0.75% and 0.70%, respectively. Strength was found in Healthcare (0.50%) and Financials (0.40%), while the remaining sectors posted results ranging between -0.33% and 0.13%. The Dow closed essentially flat, eking out a 0.03% gain, and the Russell 2000 also approached neutral, shedding a mere 0.08% as the S&P 500 declined 0.34% and the Nasdaq Composite closed 0.56% lower.

In individual names, shares of Carnival Corporation (CCL) were bid up 3.06% after luxury subsidiary Seabourn announced it had outfitted its entire fleet with Starlink WiFi technology.

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

• Dow Jones Industrial Average: -0.66%
• S&P 500: -1.70%
• Nasdaq Composite: -3.34%
• Russell 2000: -3.42%
• Bitcoin (BTC-USD): 5.27%
• Ether (ETH-USD): -1.07%

Stocks to Watch

AngioDynamics (ANGO), Constellation Brands (STZ), and Greenbrier (GBX) are expected to release quarterly earnings before equities begin trading later this morning.

Pre-market breadth is softer today as 208 names in the S&P 500 have traded hands so far this morning with 62 gainers and 146 decliners. Names catching a bid include Marathon Petroleum (MPC) and ANSYS (ANSS) while Mettler-Toledo International (MTD) (more below), EPAM Systems (EPAM), and LyondelBasell Industries (LYB) are coming under pressure.

Costco Wholesale (COST) reported December net sales that rose 9.9% YoY to $26.15 billion. The company’s comparable sales (adjusted for the impacts of changes in gasoline prices and foreign exchange) rose +8.1%, the U.S. up 7.4%, and its e-commerce business jumped 17.4% YoY.

Foxconn Technology (FXCOF) reported its December revenue fell 26.89% YoY and 29.1% MoM, but was better than expected. In December, the company’s Components and Other Products showed strong growth, while Smart Consumer Electronics delivered significant growth. More than offsetting those gains, Cloud and Networking Products, as well as Computing Products both declined compared to November. Those results led Foxconn’s 4Q 2023 revenue to decline 5.4% YoY but rose 20% QoQ. The company also shared that its operations in 1Q 2024 are gradually entering the traditional off-peak season, and seasonal performance is expected to be similar to that of the past three years.

Tesla (TSLA) has issued a recall on more than 1.62M vehicles, including its models S, X, 3, and Y electric vehicles exported to China. The affected units have problems with their automatic assisted steering and door latch controls that can increase the risk of accidents.

Mettler-Toledo International expects sales and adjusted EPS for Q4 to be below its previously issued guidance due to unexpected shipping delays with a new external European logistics service provider.

Merck (MRK) CEO Rob Davis said the company is looking at a new class of weight loss drugs called glucagon-like peptide 1 (GLP-1) that provide health benefits for diabetes and other disorders alongside weight loss.

Lockheed Martin (LMT) secured a $1.15 billion cost-plus-incentive-fee, fixed-price-incentive-fee modification against a previously awarded contract.

American Tower (AMT) signed a definitive agreement with Data Infrastructure Trust (DIT) under which DIT will acquire 100% of the equity interests in American Tower's operations in India.

The U.S. Securities Exchange Commission rejected requests by Apple (AAPL) and Disney (DIS) to prohibit questions about any ethical guidelines the companies may have regarding their use of AI, or their overall use of AI, at upcoming shareholder meetings.

IPOs

January’s IPO calendar is almost a blank slate but readers who want to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

No companies are expected to report quarterly results after equities stop trading today. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Monday, January 8

• Germany: Factor Orders – November
• Eurozone: Retail Sales – November
• Eurozone: Consumer Confidence, Economic Sentiment - December
• US: Consumer Credit – November

Tuesday, January 9

• Germany: Industrial Production – November
• Eurozone: Unemployment Rate - November
• US: Trade Balance - November

Wednesday, January 10

• US: Weekly MBA Mortgage Applications
• US: Wholesale Inventories – November
• US: Weekly EIA Crude Oil Inventories

Thursday, January 11

• Japan: Leading Indicators Index (Preliminary) - November
• US: Weekly Initial & Continuing Jobless Claims
• US: Consumer Price Index – December
• US: Weekly EIA Natural Gas Inventories
• US: Treasury Budget – December

Friday, January 12

• China: Inflation Rate, Producer Price Index – December
• Japan: Eco Watchers Survey – December
• UK: Industrial Production, Manufacturing Production - November
• US: Producer Price Index - December

Thought for the Day

“Sometimes growth requires new company, new locations, and new mindsets.” -Steve Harvey

Disclosures

• American Tower (AMT) is a constituent of the Tematica BITA Digital Infrastructure & Connectivity Index
• Costco Wholesale (COST) is a constituent of the Tematica BITA Big Spenders & Savers Index
• Apple (AAPL) is a constituent of the Tematica Research Thematic Dividend All-Stars Index

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

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