Markets tumbled in the early part of Friday’s session before recouping much of their losses to close out the first week of January. Both the Dow and the S&P 500 slid by 0.2% while the Nasdaq fell by 0.3% on the day thanks to a lower than expected increase in jobs for December 2010. Commodity markets continued their recent weakness as gold fell marginally, oil finished the day flat, and most grains tumbled back from their recent highs. Currency markets remained relatively mixed as Treasury markets saw inflows that helped to push down yields across the spectrum including a drop from 0.68% to 0.6% on the two year yield.
Undoubtedly the biggest story on the day was the jobs report which disappointed economists who had forecast a much more robust increase in employment for the month of December. The Labor Department showed an increase in employment of 103,000, far less than the 175,000 that had been forecast. Nevertheless, the unemployment rate fell forty basis points to 9.4%, the biggest one month drop in more than a decade. Unfortunately, most of this decrease can be attributed to people dropping out of the workforce rather than from finding jobs, painting a gloomy picture for the U.S. economy going forward. “We are still not seeing the kind of job creation we need to see to inspire confidence,” said Jim Baird, chief investment strategist at Plante Moran Financial Advisors. Nevertheless, markets managed to rebound after this disappointing figure thanks to upbeat comments from Fed chair Ben Bernanke who forecast stronger growth in 2011 than what the markets saw in 2010. “We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold,” Bernanke told the Senate Budget Committee earlier in the session, boosting stocks off of their lows for the day.
One of the biggest gainers in the ETFdb 60 was the Energy Select Sector SPDR (XLE) which rose by 0.7% on the day. These gains in the energy markets came as oil & gas equipment/service companies outperformed the overall market and led the sector higher on the day. A large reason for the outperformance of this slice of the oil market came from analysts at Goldman Sachs who boosted their outlook for a number of companies in the sector. Goldman increased its rating for Baker Hughes to Buy from Neutral and increased its Diamond Offshore rating from Sell to Conviction Buy. Investors in the energy sector cheered this report and bought up XLE on light volume in what was otherwise a weak day for the market [see charts of XLE here].
One of the biggest losers on the day was the iPath DJ-UBS Copper TR Sub Index (JJC) which sank by 1.1% to close out the week. Today’s losses came as investors sold off the important industrial metal in light of the weak jobs data which suggested to many that the economic recovery was beginning to stall. “It shows that the U.S. is still facing severe problems, and it will take a bit of time before it recovers to pre-crisis levels,” Commerzbank analyst Daniel Briesemann said, referring to the payrolls report. Investors also sold the metal on continued fears over a slowdown in China as well as rising inventories in the supply of the red metal, a combination that pushed many to abandon JJC before the weekend [see technicals of JJC here].
Disclosure: No positions at time of writing.