Stocks tumbled Friday and Treasury yields continued to rise after newly released data showed the pace of new job creation for September falling short of expectations, while the unemployment rate fell to a near five-decade low.
U.S. companies added 134,000 non-farm payrolls, which was less than the 185,000 forecast by economists. However, the unemployment rate dropped to a near five-decade low of 3.7%.
The Dow (^DJI) fell 0.68%, or 180.43 points at market close after shedding more than 300 points Friday afternoon. The S&P 500 (^GSPC) fell 0.55%, or 16.04 points. The tech-heavy Nasdaq (^IXIC) dropped 1.16%, or 91.06 points as shares of the FAANG stocks declined.
Yields on U.S. Treasury notes crept higher, with the 10-year yield holding above 3.2%, or the most since 2011. The yield on the 30-year Treasury note breached 3.4%.
In a research note, Goldman Sachs analysts observed that while rising rates are not necessarily bad for the stock market, rapidly rising rates can be.
“10-year US Treasury yields have risen by 30 bp to 3.2% during the past month, representing a 1.7 standard deviation move, and by 14 bp in the last two days alone,” Ryan Hammond, an analyst with Goldman Sachs, wrote in a note. “When bond yields rise by 1-2 standard deviations (~20-40 bp), S&P 500 returns have typically been flat.”
ECONOMY: Job growth slows for September, unemployment rate falls
The unemployment rate for September fell to 3.7%, the lowest level since 1969. The rate registered lower than average economist expectations of 3.8%, according to data compiled by Bloomberg.
Non-farm job creation came in at 134,000 for the month of September, falling short of average expectations of 185,000, according to average estimates of economists polled by Bloomberg.
Private payrolls fell to 121,000 from an upwardly revised figure of 254,000 from the month prior, missing average expectations of 180,000.
“The headline payroll number is a weather story,” economists at Pantheon Economics wrote in a note. The Department of Labor’s report of 121,000 private payroll gains undershot the 230,000 reading from ADP Research Institute, “as it always does in months affected by severe weather,” the economists wrote.
“ADP counts names on payroll lists, regardless of whether people were paid, but the official data only include people who were paid something — anything — in the survey period. Part-timers who could not work because of the storm therefore disappear temporarily from the BLS numbers but not ADP,” the economists wrote. “Expect a rebound to 200K-plus in October. The underlying trend in payrolls is about 200K, though surveys suggest labor demand is running at a rather faster pace; supply can’t keep up.”
September’s low unemployment rate follows a slew of economic data from earlier in the week, which also pointed to a tightening labor market. Economists at Capital Economics called Friday’s release “overall, a strong report that will keep the Fed firmly on track to continue raising rates once a quarter, with the next hike likely to come in December.”
Friday’s release is among the last jobs reports before the U.S. midterm elections, with the next data detailing October employment coming out Nov. 2.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., October 3, 2018. REUTERS/Brendan McDermid
The U.S. trade deficit widened in August despite tariffs with many of its international partners. The imbalance increased $3.2 billion for the month of August to $53.2 billion, representing a 6.4% deficit uptick from a downwardly revised $50 billion for the month prior. Capital Economics analysts wrote that the results for August “suggest that net trade is on track to be a substantial drag on GDP growth in the third quarter, which we expect will come in at 3.0% annualized.”
STOCKS: Tesla shares plunge, Snap CEO outlines turnaround plan
Tesla’s (TSLA) CEO Elon Musk mocked the SEC — the agency he had just agreed to settle a lawsuit with over the weekend — in a Twitter post Thursday. In the post, Musk called the SEC the “Shortseller Enrichment Commission,” suggesting that the lawsuit contributed to the high volume of Tesla shorted shares as some investors anticipated prices falling lower amid the controversy. Separately, U.S. District Court Judge Alison Nathan gave the SEC and Musk one week to provide a joint letter for why she should approve the pending settlement.
Shares of the company continued to decline after hedge fund manager David Einhorn compared the electric car-maker to failed bank Lehman Brothers in a letter to Greenlight Capital investors, Bloomberg first reported. “Like Lehman, we think the deception is about to catch up to TSLA,” Greenlight Capital said in its quarterly letter Friday. Tesla shares were down 7% to $261.95 per share at market close.
Snap (SNAP) CEO Evan Spiegel outlined a plan for the social media company to achieve full-year profitability in 2019, Cheddar first reported, citing a 15-page memo Spiegel sent to employees last week. The reports follow a tanking of Snap stocks Thursday, when shares dipped below $8 apiece for the first time ever. Some analysts have been bearish on Snap in light of competition from social media platforms offering similar services such as Instagram, and Evercore ISI and Citigroup each reduced their price targets for the stock Thursday.
Snap’s Vice President of Marketing Steve LaBella will leave the company by the end of November, according to a report from Cheddar on Friday. His departure follows a series of high-level exits from the company this year, including VP of Sales Jeff Lucas and Chief Strategy Officer Imran Khan. Shares of Snap fell 0.13% to $7.79 at market close and are down about 48% in 2018.
Shares of General Electric (GE) rose Friday after the company said it would tie CEO Larry Culp’s annual compensation to performance, further incentivizing the new top executive to spearhead a turnaround for the beleaguered company. Under terms of the agreement, Culp will receive $2.5 million per year in base salary, along with an annual bonus targeted at $3.75 million and equity awards valued at $15 million beginning next year. He also stands to receive a one-time reward if the company’s share prices hold between 50% to 150% above the 30-day average prior to the start of his term by 2022. At the top end, his awarded shares would then be valued at about $233 million. General Electric’s stock traded higher by 4.27% to $13.20 per share at market close Friday.
NEWS: Senate advances nomination of Brett Kavanaugh
The Senate voted Friday to advance Brett Kavanaugh’s Supreme Court nomination, with a vote on final confirmation expected Saturday. The vote follows hours of testimony before the Senate Judiciary Committee last Thursday from Kavanaugh and Christine Blasey Ford, the California professor who accused Kavanaugh of sexual assault while the two were in high school. The FBI investigated the claims at the direction of the White House, and senators viewed the resulting report Thursday, with Republicans generally viewing the report as providing no new corroborating information and Democrats criticizing the report for its incompleteness. Kavanaugh wrote an op-ed in the Wall Street Journal published Thursday night admitting he was “very emotional last Thursday,” and calling himself a “neutral and impartial arbiter who favors no political party, litigant or policy.”
Senator Bernie Sanders wrote a letter to McDonald’s (MCD) CEO Steve Easterbrook on Thursday asking him to raise the company’s minimum wage to $15 per hour. The request comes following e-commerce giant Amazon’s move earlier in the week to bump its minimum wage to $15 for its U.S. employees including temporary workers, which was met with praise by Sanders. Some Amazon employees, however, said that they will make less following the raise, in net, due to loss of existing financial incentives and bonuses when the new compensation plan goes into effect Nov. 1.
