U.S. equities closed the last trading day of the week solidly lower, with the Nasdaq suffering the largest percent decline among major indexes as technology and biotech stocks came under heavy pressure. The selloff developed on the heels of a mixed January labor report, which revealed softer-than-expected job growth and a better-than-forecasted increase in average hourly wages. Treasuries were flat on the long side of the yield curve and crude oil prices were lower, while gold and the U.S. dollar traded higher.
The Dow Jones Industrial Average (DJIA) fell 212 points (1.3%) to 16,205, the S&P 500 Index dropped 35 points (1.9%) to 1,880, and the Nasdaq Composite tumbled 146 points (3.2%) to 4,363. In heavy volume, 1.2 billion shares were traded on the NYSE and 2.5 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.83 to $30.89 per barrel and wholesale gasoline lost $0.04 to $0.99 per gallon, while the Bloomberg gold spot price increased $17.46 to $1,173.05 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 97.01. Markets were well lower for the week, as the DJIA decreased 1.6%, the S&P 500 Index declined 3.1%, and the Nasdaq Composite Index sank 5.4%.
LinkedIn Corp. (N:LNKD $108) reported 4Q earnings-per-share (EPS) ex-items of $0.94, above the $0.78 FactSet estimate, with revenues rising 34.0% year-over-year (y/y) to $862 million, versus the expected $857 million. The professional networking site said its quarterly results were bolstered by the launch of its new flagship mobile app and solid growth across its three core product lines. LNKD issued much softer-than-expected 1Q and full-year earnings and revenue guidance, reflecting slower revenue growth out of its marketing solutions unit and weakness in advertising sales. Shares fell over 40%.
Tyson Foods Inc. (N:TSN $57) reported fiscal 1Q profits of $1.15 per share, well above the expected $0.89, as revenues declined 15.4% y/y to $9.2 billion, compared to the forecasted $10.0 billion. The company said it saw above normal operating margins in all of its segments, with record margins out of its chicken and prepared foods segments. TSN raised its full-year EPS outlook, while lowering its revenue forecast, due to potential pressures facing its protein pricing as it expects domestic production of chicken, beef, pork and turkey to increase y/y. Also, the company increased its share repurchase program. Shares rallied.
Symantec Corp. (O:SYMC $20) announced that Silver Lake Resources Ltd (AX:SLR) will make a $500 million strategic investment in the cybersecurity company. In connection with the investment, SYMC said it will increase its capital return program in the form of an accelerated share repurchase and the payment of a special dividend of $4.00 per share. The announcement came as the company topped fiscal 3Q earnings and revenue expectations. SYMC traded nicely higher.
Tableau Software (N:DATA). (DATA $41) tumbled nearly 50% after the data-analysis and charting software company missed 4Q license revenue forecasts for the first time and issued 1Q and full-year guidance that severely missed expectations. DATA noted that customers have slowed spending, particularly in North America. The company did top the Street's 4Q EPS and revenue expectations.
January job growth misses expectations, though wages rise
Nonfarm payrolls (chart) rose by 151,000 jobs month-over-month (m/m) in January, compared to the Bloomberg forecast of a 190,000 increase. The initial rise of 292,000 seen in December was revised to a gain of 262,000 jobs. Excluding government hiring and firing, private sector payrolls increased by 158,000, versus the forecasted gain of 180,000, after expanding by a downwardly revised 251,000 in December, from the 275,000 rise that was initially reported. The unemployment rate dipped to 4.9% from 5.0%, where it was expected to remain, while average hourly earnings were up 0.5% m/m, versus projections of a 0.3% gain, and December's flat reading was unadjusted. Finally, average weekly hours ticked higher to 34.6 from December's unrevised 34.5 hours level, where it was expected to remain.
The trade balance (chart) showed that the deficit widened to $43.4 billion in December, compared to the $43.2 billion estimate. November's deficit was revised to $42.2 billion from the initially reported $42.4 billion. Exports declined 0.3% m/m to $181.5 billion, while imports rose 0.3% m/m to $224.9 billion.
Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $21.3 billion during December, well above the $16.0 billion forecast of economists polled by Bloomberg, while November's figure remained in line with the originally reported $14.0 billion increase. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, increased $15.4 billion, while revolving debt, which includes credit cards, rose by $5.8 billion.
Treasuries were flat at the long side of the yield curve, with the yield on the 2-Year note rising 3 basis points to 0.73%, while the yields on the 10-Year note and the 30-Year bond were unchanged at 1.84% and 2.68%, respectively.
Europe lower following U.S. employment report, Asia mixed to close out the week
European equities finished mostly lower, with traders digesting the mixed January U.S. labor report, along with some corporate and economic data in the region. The euro traded lower versus the U.S. dollar as the markets grappled with Fed rate-hike implications of the labor report, and bond yields in the region were mixed. German factory orders declined more than expected in December, while France's trade deficit narrowed more than expected in December.
Stocks in Asia finished mixed ahead of the January employment report in the U.S., while Japanese markets continued to drop and volume remained light in China ahead of next week's weeklong lunar new year holidays that will have mainland markets closed. Equities trading in Japan fell, with the yen extending its rally to pressure export-related stocks, capping off the largest weekly gain for the currency since 2009, per Bloomberg. The yen has jumped as the U.S. dollar has been routed with economic data and the global market volatility dampening expectations of further rate hikes in the U.S. Japanese stocks have given back all of a two-day surge that began last Friday as the Bank of Japan announced the adoption of a negative interest-rate policy. Meantime, Australian securities dipped amid weakness in financials and as the nation's December retail sales missed forecasts, more than offsetting some strength in commodity-related stocks.
Stocks snap weekly winning streak
U.S. stocks failed to post a third-straight weekly gain with the markets appearing to reset further Fed rate-hike expectations, as another dose of lackluster U.S. economic data added to the backdrop of heightened global market volatility. Personal spending missed forecasts, factory orders fell more than anticipated, and 4Q productivity dropped and labor costs rose. Also, The ISM Manufacturing Index showed the fourth-straight monthly contraction, and recession fears ramped up as the ISM non-Manufacturing Index suggested growth for the more heavily weighted services sector slowed at a faster pace than projected. Bond yields continued to drop and the U.S. dollar fell sharply amid dampened Fed rate-hike forecasts, to weigh on the financial sector. Crude oil prices finished lower on the week, while materials posted a solid gain bolstered by the drop in the greenback. Earnings season continued to be upstaged, though results thus far have been relatively upbeat.
As noted in the Schwab Market Perspective: Watching and Waiting, markets are still recession-obsessed, but we believe if we are in the midst of a cyclical bear market, it’s of the “non-recession” variety. The U.S. economy remains bifurcated, with manufacturing in a slump, but services hanging in there; although weaker service-sector growth helped to further expectations that the Fed is in no rush to raise rates again. Recent economic readings from around the world also suggest that the globe is not slipping into a recession.
Consumer data headlines next week's economic calendar
Amid heightened uncertainty regarding further Fed rate hikes and the recession drumbeat picking up tempo, Friday's January retail sales and preliminary February University of Michigan Consumer Sentiment Index reports will headline next week's U.S. economic calendar and shed some light on the all-important consumer.
Schwab's Brad Sorensen notes in his latest Schwab Sector Views, positives for consumers include, reduced debt loads, continued improving job market and signs wages are starting to increase. Also, energy costs have fallen, which boosts the amount consumers have to spend—although to what extent has been somewhat disappointing to this point. However, consumers seem to be cautious and Americans’ willingness to take on consumer debt appears to have waned.
Other key domestic reports slated for next week include: NFIB Small Business Optimism Index, JOLTS Job Openings, wholesale inventories, and business inventories.
International reports for next week include: Australia—consumer confidence. China—foreign direct investment, aggregate financing, and new yuan loans. India—4Q GDP and trade balance. Japan—trade balance. Eurozone—investor confidence, industrial production, 4Q GDP, and Germany's trade balance. U.K.—trade balance and industrial/manufacturing production.
Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab (N:SCHW) & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.