December 6, 2006
Stocks Inch Higher on Jobs Report
Nonfarm payrolls rose 132,000 in November, beating analyst expectations. December consumer sentiment came in below Street forecastsMajor stock indexes finished slightly higher in volatile trading Friday, recovering from initial choppiness, after a report showed November payrolls rising more than expected but still below the 138,000 six-month average. A key consumer sentiment gauge turned in an unexpectedly weak reading. Oil prices fell, giving back early gains.
On Friday, the Dow Jones industrial average rose 29.08 points, or 0.24%, to 12,307.49. The broader Standard & Poor's 500 index added 2.55 points, or 0.18%, to 1,409.84. The tech-heavy Nasdaq composite was up 9.67 points, or 0.4%, to 2,437.36.
Breadth was flat on the NYSE, with as many issues declining as advancing. Nasdaq breadth was also flat.
In economic news Friday, U.S. nonfarm payrolls rose 132,000 in November, from a downwardly revised 79,000 in October and an upwardly revised 203,000 in September. The unemployment rate edged up to 4.5% from 4.4% in October. Hourly earnings rose 0.2%, less than expected, after gaining 0.4% in October.
The employment report sent federal funds futures lower, with the market remaining priced for no change in interest rates at next Tuesday's Federal Reserve policy meeting or again on Jan. 31. The upside surprise in payrolls removes much of the concern about a possible hard landing and erases the rationale for a Fed rate cut in the first quarter, says Action Economics.
However, employment is growing more slowly than in the third quarter, others note. "At the November pace of jobs creation, unemployment will likely rise in the months ahead, and the probability that the economy will slip into recession has grown significantly," says Peter Morici, a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission.
Also on the economic docket, the preliminary December reading for University of Michigan consumer sentiment fell to 90.2, weaker than expected, from November's reading of 92.1.
Looking ahead, markets face another busy week for economic events. A quiet schedule Monday will be followed Tuesday by the Fed's interest-rate meeting and the release of October trade data.
The slate next week also holds reports on retail sales, trade prices, consumer inflation, industrial production, and regional manufacturing activity.
Oil prices slipped in a see-saw session Friday. In the energy markets, January West Texas Intermediate crude oil futures fell 46 cents to $62.03 as forecasts for warmer weather offset speculation of an output cut at OPEC's meeting next week in Nigeria.
Among stocks in the news, Hewlett-Packard (HPQ) was modestly lower after the computer maker agreed to pay $14.5 million to settle a lawsuit brought by California Attorney General Bill Lockyer over the company's investigation into boardroom news leaks.
Citigroup (C) led the Dow higher amid speculation the banking giant may be broken up.
In other deal news, Bank of America (BAC) was lower and Barclays (BCS) was higher following a Merrill Lynch research note indicating that Bank of America may be interested in buying Barclays.
Music giant EMI Group was also reportedly nearing a deal to be acquired by a European private equity group for about 2 billion pounds ($3.9 billion).
The Dow's gains were capped by an analyst downgrade. 3M (MMM) was lower after Prudential cut its rating on the stock from overweight to neutral.
Fellow Dow component McDonald's (MCD) hit a seven-year high after the fast-food chain operator reported a 6.2% rise in November same-store sales.
In tech, Xilinx (XLNX) was lower after J.P. Morgan lowered its rating on the chipmaker from overweight to neutral.
Shares of National Semiconductor (NSM) gained modestly after the chipmaker posted a 20% decline in second-quarter profit, in line with projections.
Expedia (EXPE) was sharply higher after the travel website operator announced a stock buyback of up to $30 million.
European markets finished slightly higher. In London, the FTSE-100 index rose 20.9 points, or 0.34%, to 6,152.4. Germany's DAX index added 14.38 points, or 0.22%, to 6,427.41. In Paris, the CAC 40 index was up 4.95 points, or 0.09%, to 5,384.16.
Asian markets ended lower. In Japan, the Nikkei 225 index shed 55.54 points, or 0.34%, to 16,417.82. In Hong Kong, the Hang Seng index lost 103 points, or 0.55%, to 18,739.99. Korea's Kospi index dropped 19.87 points, or 1.41%, to 1,390.43.
Treasury yields pushed higher after the jobs data showed firm growth, while inflation pressures were contained. The 10-year note fell in price to 100-17/32 for a yield of 4.55%, while the 30-year bond dropped to 97-14/32 for a yield of 4.66%. Comments from Treasury Secretary Henry Paulson that wage gains were welcome contributed to bond price weakness, says S&P.