U.S. equity markets managed to hang on to slight gains despite an extremely up-and-down session, which had seen stocks retreat heavily at one point in the day before climbing back to close out the first week of November. The Dow and the Nasdaq both gained 0.1% on the day while the broad S&P 500 managed to jump by 0.4%. Although commodity market trading was muted somewhat after yesterday’s incredible surge, many assets managed to once again march higher; gold finished the day just shy of the $1,400/oz. mark and oil kept hold of the $87/bbl. level. These gains came despite relative strength in the currency markets for the greenback, which gained more than a cent against the euro and 0.65% against the yen.
Today’s big event was the October jobs report, which showed that nonfarm payrolls rose by a greater-than-expected 151,000 last month. In addition, September numbers were revised to show that payrolls fell just 41,000, far less than the forecast of a 95,000 job losses. However, despite these positives, the unemployment rate failed to move down and remains at 9.6% due to the fact that the population is growing just as fast–if not faster– than the pace of job creation. This news left market participants scratching their heads for much of the day which is one of the main reasons we saw such choppy trading.
One of the biggest gainers on the day was the Financial Select Sector SPDR (XLF), which jumped by 2.3%. Today’s surge came as anticipation grew that the Fed would allow healthy banks to raise dividends in the near future. While banks will likely have to meet a number of rules and satisfy a host of capital ratios, the news does signal that the Fed believes that the banking system has passed through its darkest hours. “It signals that the health of the system has improved and will continue to improve going forward,” said Todd Hagerman, an analyst with Collins Stewart. Bank stocks surged on the news as dividend payouts used to be one of the main selling points for investing in the industry before the financial crash of 2008 forced many to curtail or even suspend cash payments to investors. JP Morgan, Bank of America, Wells Fargo, and Citigroup all were up by at least 1.9% and were led by a 6.4% gain from California-based Wells Fargo [see more XLF holdings here].
One of the biggest losers in the ETFdb 60 was the Vanguard Long-Term Bond Index Fund (BLV), which sank by 1.3% to close out the week. Today’s losses came as traders continued to dump long-term securities in favor of less interest rate sensitive short-term bonds, which in addition to being bought up by the Fed are likely to be more nimble if inflation hits in the near future. The 30 year Treasury bond is now yielding 4.12%–up from 4.06% yesterday and 3.67% last month–showing just how quickly investors have begun to demand higher yields for their bond holdings. Meanwhile, corporate bond holdings, at least at the 20 year AA level, have also seen an incredible rise in yields as today’s 5.07% rate represents a sharp premium over last week’s level of just 4.2% [see fundamentals of BLV here].
Disclosure: No positions at time of writing.