A relatively friendly
resiliency despite its earnings warning, and the possible resolution of the elections saga sent stocks soaring into the verdant yonder this morning.
The jobs report showed that nonfarm payrolls -- a measure of net new jobs created -- slowed significantly in November, hitting a 94,000 rise vs. the forecast 140,000. While the other components of the report were mixed, that payrolls number could give further credence to the idea that the economy is slowing enough to spur a
interest-rate cut in the near future. Lower interest rates are good for stocks because they encourage consumers and businesses to spend more, which accelerates economic growth.
Average hourly earnings didn't slow to the expected 0.3% rise. They came in at a 0.4% rise, in line with the previous month and indicating some continued wage pressure on inflation. The unemployment rate, meanwhile, was in line with expectations at 4%. Unemployment hit a 30-year low of 3.9% in October. Investors were probably hoping for a steeper climb.
And then there was Intel. The chipmaking giant last night said it would miss fourth-quarter earnings targets due to weakness in PC-demand. But in after-hours trading, the stock actually rose.
Intel was the
Nasdaq's most actively traded stock this morning, lately up 5%. The stock has already been sorely beaten on concerns that slowing computer sales will hurt the chip company, which is heavily dependent on sales to PC-makers.
Stocks' ability to shake off bad news is something the bulls have been searching for as a sign that the worst is behind us. And investors were taking their cue today.
Battered tech stocks everywhere were soaring, including
Philadelphia Stock Exchange Computer Box Maker Index
was up 2.96%, the
Philadelphia Stock Exchange Semiconductor Index
was rising 9.3% and
TheStreet.com Internet Sector
index was up 6.2%.
Over on the
Dow, defensive stocks were causing a minor drag. Drug stock
was the biggest loser, down 1.99% and putting 11 points of downside pressure on the blue-chip index.
Procter & Gamble
was also falling, down 2.8%. But those stocks were no match for the index's tech titans -- Intel,
and Microsoft, which were giving it a combined 40 point boost. But
was the biggest gainer, with 14.8 upside Dow points.
The interest-rate cut theory first won major support Tuesday, when
Alan Greenspan said inflation was no longer his biggest concern and hinted that a sharp slowdown in the economy could prompt him to act. Investors saw this as a sign the Fed could cut interest rates soon.
Of course, not everyone immune to a warning. As warnings flood the market this quarter, they may continue to be deadly for individual stocks.
also warned last night that it expects to miss its earnings estimates for 2001 and said earnings could be further hurt by continued strength in the British currency vs. the euro. Unlike Intel, Coca-Cola was falling 13.1%. But the company's stock had been rising in recent weeks.
The fourth quarter's confession season -- that pre-reporting time when companies warn if they're going to miss targets -- is expected to be the busiest one in about four years.
recently wrote about how the season has gotten off to an
Back to top
As optimism lifted this morning that the Fed might move to cut interest rates, which would give a boost to the economy and thus cyclical stocks, the
Morgan Stanley Cyclical Index
was rising 0.5%.
Once again, in an all too familiar pattern, defensive stocks were slipping as investors picked up tech stocks.
Philadelphia Stock Exchange Forest & Paper Products Index
was down 0.9%, the
Philadelphia Stock Exchange Pharmaceutical Index
was losing 1.1%, and the
Philadelphia Stock Exchange Gold and Silver Index
was toppling 1.7%.
Back to top
Treasury note and bond prices fell after the November
) showed that last month's wages and salaries rose at the fastest pace in nearly two years. That threw cold water on expectations for a near-term interest-rate cut by the Fed to stimulate economic growth, which has been slowing.
The benchmark 10-year
Treasury note was down 10/32 at 102 31/32, lifting its yield to 5.350%.
The economy added fewer jobs than economists expected in November, a sign that growth continues to slow. Nonfarm payrolls grew by 94,000, compared to an average forecast for a gain of 137,000 among economists polled by
The unemployment rate rose to 4% from 3.9%, further confirming that demand for workers is ebbing.
But the average hourly wage rose 0.4% to $13.94 from $13.88, lifting the earnings growth rate to 4%, the fastest since January 1999. A fast rate of earnings growth has the potential to cause inflation to rise by creating more demand for goods and services than the economy can produce. As long as the Fed sees the risk of rising inflation, it will hesitate to lower interest rates, even though growth is slowing.
Chicago Board of Trade
, traders of
fed funds futures contracts downgraded the odds of a near-term interest rate cut by selling the contracts. The odds that the Fed will lower the
fed funds rate to 6.25% from the current 6.5% by the end of January -- indicated by the price of the February fed funds futures contract -- fell to 90% from 102%.
Back to top