S&P 500 rises sharply as traders digest jobs, manufacturing data ahead of Fed minutes

What’s driving markets

Stocks were trading higher Wednesday after fresh data showed U.S. job openings fell slightly in November in a still strong labor market.

That raised concerns that the Federal Reserve may not be near the end of its monetary tightening cycle.

“Plentiful openings with relatively few available workers indicate a tight labor market and put upside pressure on wages,” said Jeffrey Roach, chief economist for LPL Financial, in emailed comments Wednesday. “The Federal Reserve will continue tightening as rising wage pressure is a key risk to the inflation outlook.”

Read: U.S job openings stay high at 10.5 million and show labor market still very strong

U.S. equities had opened higher before the Labor Department released the jobs data for November, boosted in part by encouraging inflation data from Europe. A decline in the French consumer price index was larger than expected, for example.

“If inflation can fall in the EU, it should help relieve upward pressure on U.S. Treasury yields and that would be an incremental and surprise positive for stocks at the start of the year,” said Tom Essaye, founder and president of Sevens Report Research, in a note Wednesday. “Bottom line, markets need inflation to fall globally, not just in the U.S., so that bond yields can decline and the market multiple on stocks can support valuations.”

Wall Street’s benchmark S&P 500 index fell 19.4% in 2022 after the Fed tried to combat the highest inflation in decades by raising interest rates 425 basis points in just nine months, a move that risks recession and lower company earnings.

In other U.S. economic data released Wednesday, the Institute for Supply Management said that its manufacturing index slipped in December to 48.4%. Any number below 50% reflects a shrinking economy.

Equity bulls have been hoping to see data showing an economy that is showing signs of cooling, though not too much, as this could allow the U.S. central bank to slow the pace of interest rate rises.

Investors are waiting for the Fed to release minutes of its December policy meeting at 2 p.m. Eastern time.

“The market continues to price in the likelihood of a further 0.25% interest rate rise from the Fed in February, with a terminal rate of around 5% later in the year,” said Richard Hunter, head of Markets at Interactive Investor.

“As time progresses and the time lag from previous rate rises diminishes, the full effects of the tightening should become clearer, with the major concern remaining that the aggressive hiking policy so far could tip the world’s largest economy into recession,” Hunter said.

Meanwhile, Mark Newton, head of technical strategy at Fundstrat, noted that the stock market’s first day of trading after the New Year break — particularly the poor performance of some big tech stocks like Apple — did not bode well.

“The downward tug of large-cap technology along with bearish cycle projections for January still argue that the path of least resistance might be lower over the next couple weeks before any low is in place,” said Newton. “However, this doesn’t imply that October lows have to be tested or broken right away.”

Companies in focus

• GE HealthCare Technologies  jumped around 6% as it began trading as a separate company on the S&P 500 index Wednesday. In 2021 GE announced plans to break up into three companies so it can focus on its aviation business. It plans to spin off its energy segment in 2024. Shares of GE were up more than 3%.
• Salesforce shares rose 3.2% after the cloud based marketing software company announced a restructuring plan that includes cutting its staff by about 10% and the closure of some offices.
• Chinese ADRs jumped after Ant Group received approval to expand its consumer finance business in a sign of progress in resolving regulators’ concerns. Shares of Alibaba which owns 33% of Ant, gained more than 10% while JD.com surged more than 12%.