The S&P 500 fell 0.8% on Friday, as risk sentiment was undercut by Russia’s takeover of a nuclear power plant in Ukraine and by a 7% increase in oil prices ($115.27, +7.46, +6.9%).
The Nasdaq Composite (-1.7%) and Russell 2000 (-1.6%) each declined by more than 1.5% while the Dow Jones Industrial Average (-0.5%) outperformed on a relative basis with a 0.5% decline.
Startling images of a fire at the nuclear plant, which is the largest in Europe and supplies a quarter of Ukraine’s power, catalyzed the negative bias overnight. Fortunately, there wasn’t a radiation leakage at the plant, and authorities reported that radiation levels were normal.
Still, the news stoked concerns of nuclear conflict and, in turn, contributed to early de-risking efforts. The market pared losses in the afternoon, though, leaving six of the 11 S&P 500 sectors in negative territory, including the heavily-weighted financials (-2.0%) and information technology (-1.8%) sectors at the bottom of the pack.
The energy sector rose 2.9%, thanks to elevated oil prices, which gained momentum amid news that the White House was considering a ban on Russian oil imports. The utilities (+2.2%), real estate (+0.8%), health care (+0.5%), and consumer staples (+0.1%) sectors also closed higher amid some defensive positioning.
The geopolitical news overshadowed stronger-than-expected jobs growth displayed in the February employment report, which Chicago Fed President Evans (non-voter in FOMC) said will not change anything for the Fed’s next meeting in a CNBC interview. Nonfarm payrolls increased by 678,000 (Briefing.com consensus 400,000).
Arguably, the bigger story in the employment report was the flat month-over-month growth in average hourly earnings (Briefing.com consensus +0.5%). Stagnant wage growth in an inflationary environment, marred by $115-per-barrel oil prices, painted a gloomy picture for consumer spending.
The Treasury market remained a signpost for growth concerns and a place for investors to seek safety. The yield curve flattened with the 2-yr yield declining by five basis points to 1.49% and the 10-yr yield declining by 12 basis points to 1.72%. The U.S. Dollar Index rose 0.7% to 98.50.
Separately, Broadcom ( AVGO 595.99, +17.39, +3.0%) was an individual standout, rising 3.0% on pleasing earnings results and guidance, while Costco ( COST 525.50, -7.55, -1.4%) fell alongside the broader market despite reporting better-than-expected earnings results.
Reviewing the employment report in more depth:
- Hiring activity was strong in February, but wage increases were not. Nonfarm payrolls jumped by 678,000, yet average hourly earnings were unchanged. That left the year-over-year rate at 5.1%, down from 5.5% in January.
- February nonfarm payrolls increased by 678,000 (Briefing.com consensus 400,000). The 3-month average for total nonfarm payrolls rose to 582,000 from 572,000. January nonfarm payrolls revised to 481,000 from 467,000. December nonfarm payrolls revised to 588,000 from 510,000.
- February private sector payrolls increased by 654,000 (Briefing.com consensus 390,000). January private sector payrolls revised to 448,000 from 444,000. December private sector payrolls revised to 561,000 from 503,000.
- February unemployment rate was 3.8% (Briefing.com consensus 3.9%), versus 4.0% in January. Persons unemployed for 27 weeks or more accounted for 26.7% of the unemployed versus 25.9% in January. The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.2%, versus 7.1% in January.
- February average hourly earnings were unchanged (Briefing.com consensus 0.5%) versus a downwardly revised 0.6% increase (from 0.7%) in January. Over the last 12 months, average hourly earnings have risen 5.1%, versus 5.5% for the 12 months ending in January.
- The average workweek in February was 34.7 hours (Briefing.com consensus 34.6), versus an upwardly revised 34.6 hours (from 34.5) in January. Manufacturing workweek increased 0.4 hours to 40.7 hours. Factory overtime increased 0.2 hours to 3.6 hours.
- The labor force participation rate increased to 62.3% from 62.2% in January.
- The employment-population ratio rose to 59.9% from 59.7% in January.
- Some will paint the average hourly earnings figure as good news insomuch as it will temper some of the worries about inflation pressures broadening out due to rising wages and the Fed needing to take a more aggressive step toward removing its policy accommodation. However, it isn’t truly good economic news.
- The key takeaway from the report is that real average hourly earnings are negative and that is likely going to adversely impact consumer spending activity in the face of escalating inflation pressures, which will be acute at the gas pump and in the grocery aisles. This report, then, is good for now, yet it may not translate later into as good of things for the economy and corporate earnings.
Looking ahead, investors will receive the Consumer Credit report for January on Monday.
- Dow Jones Industrial Average -7.5% YTD
- S&P 500 -9.2% YTD
- Russell 2000 -10.9% YTD
- Nasdaq Composite -14.9% YTD
Overseas:
- Europe: DAX -4.4%, FTSE -3.5%, CAC -5.0%
- Asia: Nikkei -2.2%, Hang Seng -2.5%, Shanghai -1.0%
Commodities:
- Crude Oil +7.46 @ 115.27
- Nat Gas +0.24 @ 5.00
- Gold +33.20 @ 1968.80
- Silver +0.58 @ 25.83
- Copper +0.16 @ 4.92