U.S. stocks finished the trading day and week nicely higher and the Dow came within a point of touching the 20,000 mark intraday. In economic news, a mixed December labor report was headlined by solid wage growth. Treasuries, gold and crude oil prices were lower and the U.S. dollar advanced. On the equity front, Gap (NYSE:GPS) posted upbeat holiday sales and profit guidance and JC Penney (NYSE:JCP) announced an unexpected decline in same store sales.
The Dow Jones Industrial Average increased 65 points (0.3%) to 19,964, the S&P 500 Index gained 8 points (0.4%) to 2,277 and the Nasdaq Composite advanced 33 points (0.6%) to 5,521. In moderate volume, 759 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.23 to $53.99 per barrel and wholesale gasoline lost $0.01 to $1.63 per gallon. Elsewhere, the Bloomberg gold spot price lost $7.68 to $1,172.44 per ounce, and the dollar index—a comparison of the U.S. dollar to six major world currencies—increased 0.6% to 102.17. Markets were higher for the week, as the DJIA increased 1.0%, the S&P 500 Index added 1.7% and the Nasdaq Composite advanced 2.6%.
Gap Inc. ($23) traded higher after the clothing retailer reported a 2.0% year-over-year (y/y) increase in same-store sales for the November and December holiday period, led by a jump in sales at its Old Navy unit and a gain at its Gap stores, which more than offset a drop at its Banana Republic chains. The company noted improved momentum over the holiday season and a positive customer response. GPS said it expects adjusted 2016 earnings-per-share (EPS) to be modestly above the high end of its previous guidance.
JC Penney Company Inc Holding ($8) finished lower after the company posted an unexpected y/y decline in same-store sales over the November and December period, pointing out that the first three weeks of November proved to be challenging, consistent with the trends in the broader retail industry. However, JCP reaffirmed its full-year operating earnings outlook, noting that same-store sales for the six-week period from Thanksgiving week through the end of December were positive.
December jobs report mixed, trade deficit widens
Nonfarm payrolls (chart) rose by 156,000 jobs month-over-month (m/m) in December, compared Bloomberg's forecast of a 175,000 increase. However, November was upwardly revised to a gain of 204,000 jobs. The total upward revision in October and November was 17,000. Private sector payrolls increased by 144,000, versus the forecasted gain of 170,000, after increasing by a positively revised 198,000 in November. Last month's employment increase was led by gains in healthcare and social assistance, while continuing to trend up in food services and drinking places, along with transportation and warehousing. 2.2 million jobs were added to payrolls in 2016, down from 2.7 million in 2015, but remained above 2 million for a sixth-straight year, the longest streak since 1999, per Bloomberg.
The unemployment rate ticked higher to 4.7% from 4.6%, matching expectations, while average hourly earnings rose 0.4% m/m, versus projections of a 0.3% increase, and November's unrevised 0.1% dip. Y/Y, wage growth was up 2.9%—the fastest pace since June 2009 when the recovery from the great recession was getting started—versus last month's 2.5% rate, and versus forecasts of a 2.8% gain. Finally, average weekly hours remained at November's downwardly adjusted 34.3 hours level, versus forecasts of a 34.4 level.
The favorable trend in wage growth bodes well for its impact on consumer spending, which is the main driver of the U.S. economy, and likely helping counter concerns about the likelihood of a faster pace of Fed rate hikes this year and the potential boost in inflation expectations.
The trade balance (chart) showed that the deficit came in at $45.2 billion in November, compared to estimates of $45.4 billion. October's deficit was revised lower to $42.4 billion. Exports dipped 0.2% m/m to $185.8 billion, while imports rose 1.1% to $231.0 billion.
Factory orders (chart) fell 2.4% m/m in November, versus expectations of a 2.3% fall, while October's figure was adjusted higher to a 2.8% rise. November durable goods orders—preliminarily reported two weeks ago—were adjusted up to a 4.5% drop, versus expectations of an unrevised 4.6% drop. Orders of nondefense capital goods excluding aircraft—a proxy for business spending—were unrevised at the initially reported 0.9% increase.
Treasuries finished lower with the yield on the 2-year note increasing 5 basis points (bps) to 1.21%, the yield on the 10-year note gaining 7 bps to 2.42% and the 30-year bond rate advancing 6 bps to 3.01%.
Bond yields and the U.S. dollar have moderated this week from recent rallies that came courtesy of post-election optimism, the string of upbeat economic data, and the Fed's December rate hike and a faster-than-previously-forecasted pace of rate increases for 2017.
Europe adds to weekly gains, Asia mixed
European equities showed some late-day strength and the Stoxx Europe 600 Index added to a solid weekly advance, as the markets digested a mixed December U.S. employment report, which showed job growth missed forecasts but wage growth topped expectations and continued to gain steam. Also, there was some mixed economic data in the region for traders to grapple with. German and Eurozone November retail sales both fell, with the former dropping more than expected, while eurozone economic confidence for December improved more than expected. The euro and British pound lost ground on the U.S. dollar, while bond yields in the region moved higher.
Stocks in Asia finished mixed ahead of today's key U.S. labor report, while the recent rebound in the yen pressured export-related stocks in Japan. Mainland Chinese shares declined, while stocks in Hong Kong advanced, bolstered by some upbeat manufacturing and services sector reports, along with a recent reprieve in the tumble in the nation's currency. Australian securities finished flat, with strength in financials being met with weakness in basic materials stocks, while the country reported that its trade balance unexpectedly swung to a surplus for November. Indian stocks declined and South Korean equities finished higher.
2017 picks up where 2016 ended
Stocks picked up in 2017 where 2016 left off, rallying to record highs and the Dow threatening the 20,000 mark, with the post-election momentum continuing, despite President-elect Donald Trump taking aim again via twitter at protecting manufacturing activity in the U.S. Trump threatened General Motors Co. (NYSE:GM ($36) and Toyota Motor Corp (NYSE:TM) ($120) with a "big border tax" if they manufacture vehicles in Mexico that are sold in the U.S.
The tweets were met with Ford Motor Co. (NYSE:F ($13) cancelling plans for a $1.6 billion new plant in Mexico, and instead saying it will invest $700 million to expand its Flat Rock plant in Michigan. A plethora of upbeat global manufacturing and services data, highlighted by stronger-than-expected U.S. reads from ISM and Markit, added support for stocks.
The data, coupled with strong December auto sales and the upbeat wage component of Friday's labor report, appeared to foster optimism that the economy is already gaining steam ahead of the expected more business-friendly proposed policies of the incoming Trump administration. Stocks maintained gains for the week even as Macy's Inc. (NYSE:M) ($31) and Kohl's Corp. (NYSE:KSS ($42) headlined a plethora of disappointing sales reports for the critical holiday season.
The U.S. dollar dipped amid some choppiness in the foreign exchange markets, with focus on reprieves from recent drops in the currencies from China and Mexico. The rally in Treasury yields moderated somewhat after the Street seemed to view the Fed's December meeting minutes as slightly more dovish. Crude oil prices dipped despite relatively bullish inventory data, while uncertainty festered regarding if production cuts among the major world oil producers will come to fruition later this month.
Next week will be the first full week of the New Year, but the U.S. economic calendar will be light, with the releases of the NFIB Small Business Optimism Index, JOLTS job openings and the Producer Price Index (PPI) headlining the docket. However, we will get our first glimpses at 4Q earnings season with Bank of America Corp. (NYSE:BAC ($23), Dow member JPMorgan Chase & Co. (NYSE:JPM ($86), and Wells Fargo (NYSE:WFC) & Co. (WFC $55) set to deliver results on Friday.
International reports due out next week include: Australia—building approvals and retail sales. China—CPI and PPI, lending statistics and trade balance. India—CPI and industrial production. Eurozone—investor confidence, unemployment rate and industrial production, along with German trade balance. U.K.—trade balance, and industrial and manufacturing production.