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05/01/24 Briefing

Stocks bounced a bit on Friday as traders tried to shake an early 2024 sell-off amid conflicting economic data.

The S&P 500 added 0.5%, while the Nasdaq Composite gained 0.6%. The Dow Jones Industrial Average edged 0.2% higher.

The three major averages are all on track to break nine-week winning streaks, with the Nasdaq Composite suffering the biggest loss for the week at 2.7%.The S&P 500 and Dow are down 1.1% and 0.5%, respectively.

Stocks gyrated on Friday as traders assessed incoming economic data to determine if and when the Federal Reserve will start cutting interest rates.

The U.S. economy added many more jobs than anticipated in December, with nonfarm payrolls growing by 216,000. Economists polled by Dow Jones expected a gain of 170,000 for last month. The unemployment rate held steady at 3.7% in another sign of continued labor strength.

The report sent Treasury yields spiking higher, with the benchmark 10-year rate trading around 4.04%.

A strong labor market could mean that the Fed might potentially delay the first of its rate cuts, which traders have been eagerly anticipating. Before the strong data hit Friday, traders were hoping the Fed would start cutting rates as early as March and lower them by as many as six times in 2024. Those expectations will need to be dialed back after Friday’s report.

While December’s ISM services index represented that business activity is still overall expanding in the economy, the reading of 50.6% was nearly two full percentage points below the Dow Jones consensus estimate of 52.5% and November’s 52.7% level. A reading above 40% marks the threshold for economic growth.

“The job market is looking good — perhaps too good — and maybe inflation will be running a little hotter now based on the wage growth that we’re seeing,” Mike Bailey, director of research at FBB Capital Partners, told CNBC. “This sizzle we’re getting in the job market might be pouring some cold water on hopes of a rapid string of rate cuts.”

He added: “Coming into today, investors wanted three things: fading inflation, a stable job market and rate cuts. However, I think coming out of today’s jobs number suggests to me that there’s some give and take here, and investors might only be getting one out of the three items on their wish list.

The stock market surged to end 2023 as traders anticipated the Fed would pivot to easier monetary policy. The S&P 500′s winning streak to end the year was its longest in nearly two decades and brought the benchmark’s gain for the year to 24%.

One other factor weighing on the market in the new year is the cooling off of large-cap tech stocks like Apple, which has been downgraded by two research shops this week.

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