Benchmarks ended higher on Friday boosted by an upbeat jobs report, which made it almost certain that the Fed will hike rates later this month. Financial companies gained since a rate hike bode well for them. Gains in financial sectors were able to offset losses in energy shares, dragged down by decline in oil prices. Additionally, ECB President Mario Draghi’s dovish comments lifted investors’ sentiment. The S&P 500 and the Dow posted their biggest one-day percentage gains in almost three months on Friday. For the week, benchmarks managed to close slightly higher.
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The Dow Jones Industrial Average (DJI) gained 2.1% or 369.96 points to close at 17,847.63. The Standard & Poor’s 500 (S&P 500) advanced 2.1% to close at 2,091.69. The tech-laden Nasdaq Composite Index closed at 5,142.27, increasing 2.1%. The fear-gauge CBOE Volatility Index (VIX) plunged 18.2% to settle at 14.81. A total of around 4.1 billion shares were traded on Friday on the NYSE. Advancers outpaced declining stocks on the NYSE. For 64% stocks that advanced, 33% declined.
A strong U.S. jobs report gave indications that the Fed is more likely to raise rates in two weeks. According to the Bureau of Labor Statistics (BLS), the U.S. economy created a total of 211,000 jobs in November, beating the consensus estimate of 199,000. However, the tally was significantly lower than October’s revised job number of 298,000. It was revised up from last month’s reported figure of 271,000. Hiring was also broad based in November, with energy sector being the lone exception. November’s job gains pushed average monthly jobs growth to 210,000 so far this year.
Moreover, the unemployment rate remained unchanged at 5% in November since a sizeable portion of people began searching for work. However, a broader measure of unemployment including Americans stuck in part-time jobs increased slightly year on year in November to 9.9%. Separately, the average hourly earnings gained 2.3% year on year in November. The average hourly earnings are also up 2.6% from January through November, registering its strongest cumulative growth since 2009.
Possibility of a rate hike this month had a positive impact on the financial sector. The Financial Select Sector SPDR (XLF) gained 2.7%, the highest among the S&P 500 sectors. Top holdings from the sector such as Wells Fargo & Company (WFC), JPMorgan Chase & Co. (JPM), Berkshire Hathaway Inc. (BRK-B), Bank of America Corporation (BAC) and Citigroup Inc. (C) increased 2.7%, 3.2%, 2.9%, 2.9% and 2.9%, respectively.
Gains in financial shares offset losses in energy shares. Decline in oil prices had a negative impact on energy shares. Oil prices took a beating on Friday after the Organization of Petroleum Industries (OPEC) decided to maintain a production ceiling, which reflects the “current actual” output. Prices of WTI crude oil and Brent crude oil dropped 2.8% and 1.9% to $39.97 a barrel and $43 per barrel, respectively.
The Energy Select Sector SPDR (XLE) declined 0.6% and was the only sector among the S&P 500 sectors to end in the red. Key stocks from the energy sector such as Occidental Petroleum Corporation (OXY), ConocoPhillips (COP), Kinder Morgan, Inc. (KMI) and EOG Resources, Inc. (EOG) decreased 0.9%, 0.8%, 12.7% and 0.6%, respectively.
Meanwhile, European Central Bank President Mario Draghi’s reassurance to step up stimulus program to achieve the desired inflation rate boosted investors’ sentiment. He said that “there is no particular limit to how we can deploy any of our tools”. He added: “There is no doubt that if we had to intensify the use of our instruments to ensure that we achieve our price stability mandate, we would”. His comments came in after the ECB’s smaller-than-expected monetary stimulus failed to boost investor’ sentiment on Thursday.
For the week, the S&P 500, the Dow and the Nasdaq advanced 0.05%, 0.3% and 0.3%, respectively. Benchmarks were able to eke out gains for the week, banking on a strong nonfarm payroll report that supported a Fed rate hike in December. Fed Chairwoman Janet Yellen had reiterated her optimism about the U.S. economy and indicated her willingness to raise rates at the Fed’s policy meeting this month.
Additionally, Draghi’s comments that “quantitative easing is there to stay, if needed, it could be recalibrated” also had a positive impact on the broader markets on Friday. However, on Thursday, ECB’s fresh stimulus measures had disappointed market participants. The ECB extended its bond buying program by six months and pushed its deposit rate further into negative territory.
Separately, a mass shooting in southern California negatively impacted all the three major indexes on Wednesday. Meanwhile, investors weighed the discouraging brick-and-mortar stores sales results during the holiday shopping weekend, while decline in biotech stocks had a negative impact on the healthcare sector last Monday.
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