U.S. equities are sliding as investors sift through the November labor report that showed stronger-than-expected job growth. The report may be tempering market expectations for a less aggressive Fed in the near-term, as hopes for such ratcheted higher earlier in the week after Fed Chair Powell suggested the Central Bank could slow the pace of its tightening campaign as early as this month. Treasury yields turned to the upside following the data, and the U.S. dollar is gaining ground, while crude oil prices are slightly higher in choppy trading, and gold is pulling back from yesterday's solid rise. Earnings reports continue to trickle in, with Marvell Technology falling short of expectations on both the top and bottom lines and slashing its guidance, while Ulta Beauty trounced the Street's forecasts amid soaring same-store sales growth. Asia finished with broad losses, and Europe is mixed, with the global markets searching for clarity on China's latest moves with regards to its COVID restrictions.
At 10:50 a.m. ET, the Dow Jones Industrial Average is down 0.5%, the S&P 500 Index is decreasing 0.8%, and the Nasdaq Composite is falling 1.0%. WTI crude oil is rising $0.55 to $81.77 per barrel, and Brent crude oil is increasing $0.04 at $86.92 per barrel. The gold spot price is trading $19.60 lower to $1,795.60 per ounce, and the Dollar Index is advancing 0.6% to 105.31.
Marvell Technology Inc. (MRVL $43) reported adjusted Q3 earnings-per-share (EPS) of $0.57, below the $0.59 FactSet estimate, as revenues rose 26.9% year-over-year (y/y) to $1.54 billion, just short of the Street's forecast of $1.55 billion. The maker of semiconductors and related technology said reduction in inventories, particularly at its storage customers, impacted its near-term results, and will affect its outlook. As such, MRVL adjusted Q4 EPS lower to a range of $0.41 to $0.51, and revenues to be $1.40 billion, plus or minus 5%, with the Street forecasting $0.62 and $1.61 billion, respectively. However, President and CEO Matt Murphy said, "Our design win pipeline remains strong, our new cloud-optimized products are starting to ramp, and we are well positioned to navigate the current environment successfully and remain confident in our long-term growth drivers." Shares of MRVL are falling.
Ulta Beauty Inc. (ULTA $469) posted adjusted Q3 earnings of $5.34 per share, well above the expected $4.15, as revenues rose 17.2% y/y to $2.34 billion, beating expectations for $2.22 billion. Same-store sales rose 14.6% y/y, propelled by a 10.7% rise in transactions and a 3.5% increase in average ticket. ULTA said even as consumers weigh their purchasing decisions amid the current inflationary environment, they are still choosing to spend on beauty, with spending increasing across all income levels. ULTA said it now sees full-year earnings within a range of $22.60 and $22.90 per share and revenue for the period of between $9.95 billion and $10 billion, compared to analysts' forecasts of $21.40 per share and $9.77 billion. ULTA is trading lower.
As the curtain comes down on Q3 earnings season, Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her article, Disappearing Act: Earnings, how earnings weakness is starting to materialize across a broader swath of industries, with hits coming from a strong dollar, weaker demand, and aggressive monetary policy.
November job growth tops forecasts
Nonfarm payrolls (chart) rose by 263,000 jobs month-over-month (m/m) in November, compared to the Bloomberg consensus estimate of a 200,000 rise, while October's figure was upwardly adjusted at an increase of 284,000 from the initial 261,000. Excluding government hiring and firing, private sector payrolls advanced by 221,000, versus the forecasted rise of 185,000, after increasing by 248,000 in October, revised upward from the preliminarily reported 233,000 gain. The labor force participation rate dipped to 62.1% from October's unrevised 62.2% figure, where it was expected to remain.
The unemployment rate remained at October's 3.7% in line with forecasts. The underemployment rate—including total unemployed and those employed part time for economic reasons, along with people who are marginally attached to the labor force—decreased to 6.7% from the prior month's 6.8% rate. Average hourly earnings were up 0.6% m/m, above projections for a 0.3% rise and compared to October's upwardly-adjusted 0.5% rise. Compared to last year, wages were 5.1% higher, higher than forecasts of a 4.6% increase, and below October's upwardly-adjusted 4.9% rise. Finally, average weekly hours dipped to 34.4 from October's 34.5 rate where it was expected to remain.
Inflation and a tight labor market have been driving factors behind the aggressive monetary policy from the Federal Reserve. However, this week Fed Chairman Jerome Powell suggested that the Central Bank may decelerate the pace of aggressive rate hikes after raising rates by 75 basis points (bps) for four-straight meetings. Schwab's Liz Ann Sonders notes in her latest article, U.S. Outlook: How Many More Times, Fed?, that Powell, among other Fed officials, has seemingly shifted his attention from the rear-view mirror to the windshield. Inflation is a lagging indicator, but the impact of monetary policy changes is in the future. Additionally, as noted in the latest . Additionally, as noted in the latest Schwab Market Perspective: Stress Cracks, as the Federal Reserve continues to ratchet up the pressure with higher interest rates, cracks are beginning to appear beneath the surface of the U.S. economy.
Treasury rates are higher, as the yield on the 2-year note is increasing 15 basis points (bps) to 4.38%, the yield on the 10-year note is rising 7 bps to 3.58%, and the 30-year bond rate is up 2 bps to 3.65%.
Europe mixed with China news and U.S. employment data in focus
Stocks in Europe have come off the lows of the day and are mixed in late-day action as the global markets monitor the latest events in China, while also digesting the hotter-than-expected employment data out of the U.S. Comments from U.S. Fed Chairman Jerome Powell this week have given the markets a boost, as he suggested the aggressive pace of monetary policy tightening may decelerate as early as this month. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, Central Banks Stepping Down, how central banks seem to be stepping down from aggressive rate hikes, and this could lead to a year-end "Santa Pause" rally for stocks. The euro and British pound are falling versus the U.S. dollar, while bond yields in the Eurozone and U.K. are higher. Economic data in the region showed that import prices in Germany fell, but at a smaller-than-expected rate, industrial production in France tumbled, unemployment figures out of Spain came in better than anticipated, and producer prices in the Eurozone continued to moderate off record highs, but remained severely elevated.
The U.K. FTSE 100 Index and Italy's FTSE MIB Index are little changed, France's CAC-40 Index is down 0.2%, Germany's DAX Index is gaining 0.2%, while Spain's IBEX 35 Index and Switzerland's Swiss Market Index are declining 0.3%.
Asia falls amid uncertainty in Chinese rule changes
Stocks in Asia traded broadly lower as investors search for clarity in the latest developments out of China surrounding its COVID-related restrictions. Small changes in the Asian nation's zero-tolerance policy within the last day or so have raised hopes that a broader tempering may be in the offing. State media indicated a relaxation in some of the quarantine rules, while a statement from a government official appeared to downplay the severity of the Omicron variant. Meanwhile, in one of the areas hardest hit by the pandemic, most restaurants and entertainment places will be allowed to gradually open. In his latest article, Risk for 2023: China Reopening, Schwab's Jeffrey Kleintop notes that Chinese officials may be preparing to bring an end to China's zero-COVID policy but reopening the world's second-largest economy could bring inflationary challenges.
The moves come despite more stimulus measures coming from China's government, which has already lowered the reserve requirements for its largest banks and announced further measures to try to help its struggling property market. In light economic news in the region, retail sales in Australia fell in line with forecasts, while consumer prices in South Korea moderated from last month.
Japan's Nikkei 225 Index fell 1.6%, with the yen adding to this week's gains versus the U.S. dollar. China's Shanghai Composite Index lost 0.3%, and the Hong Kong Hang Seng Index also shed 0.3%, paring some of this week's strong rally. Meanwhile, South Korea's Kospi Index dropped 1.8%, Australia's S&P/ASX 200 Index declined 0.7%, and India's S&P BSE Sensex 30 Index also traded 0.7% to the downside.
Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & 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.
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