Investors digested the latest employment numbers as they await Tuesday's Federal Reserve meeting
Stocks reacted with a shrug to a much-anticipated jobs report Friday. Major indexes barely moved after U.S. nonfarm payrolls largely met expectations, rising 94,000 in November with the unemployment rate staying at 4.7%.
The raging debate Friday on Wall Street was how the mixed employment figures will influence Federal Reserve policy makers, who are expected to cut interest rates at the Dec. 11 meeting. Most investors expect a 25 basis point cut, but some are still calling for 50 basis point reduction.
"There was a little for everyone" in the job report, says Brian Gendreau of ING Investment Management. Job growth was higher than expected in November, but September and October figures were revised to show a net decline of 48,000 from previous estimates.
On Friday, the Dow Jones industrial average rose 5.69 points, or 0.04%, to 13,625.58. The broader S&P 500 index inched down 2.68 points, or 0.18%, to 1,504.66. The tech-heavy Nasdaq composite index lost 2.87 points, or 0.11%, to 2,706.16.
For every 16 stocks moving higher on the NYSE, 15 lost ground. On the Nasdaq, the ratio was 15 to 14 negative.
The report raised hopes for some that the U.S. could avoid recession. "The economy is slowing down, but it's not going off a cliff," Gendreau says.
But it also showed the damage inflicted by the housing downturn and financial crisis. Service, retail and government employers hired in November, but manufacturing payrolls fell 11,000, construction was down 24,000 and financial jobs dropped 20,000.
While offering "few overall surprises," says Action Economics, the report leaves "the Fed faced off for a 25 or 50 debate" at its next meeting -- that is, a decision as to whether to cut the federal funds rate by 0.25 percent or 0.50 percent.
Bear Stearns economists said the tight labor market may "boost wage pressures" going forward, which could dissuade policymakers from a big half-point cut. Average hourly earnings rose a strong 0.5%, up from a 0.1% increase in October.
Some are urging the Fed to cut rates deeply. Now is not the time for a "conservative or incremental approach," wrote Ken Kim of Stone & McCarthy Research Associates. "Not only are key portions of money markets under duress, there is also the risk the U.S. economy could slip into recession."
In other economic news, the University of Michigan consumer sentiment index fell modestly in December to 74.5 from 76.1 in November, extending the downtrend from the 90.4 reading in July. Surging gasoline prices, falling stock prices, and lingering credit market turmoil are continuing to weigh on this measure, says Action Economics.
Next week, the Dec. 11 Federal Reserve meeting is likely to dominate the headlines. However, data will arrive on pending home sales, export and import prices, inflation, retail sales, jobless claims, and consumer confidence.
In the energy markets Friday, January crude oil futures dropped $2.01 to $88.22.
Among the stocks in the news on Friday, Capital One Financial (COF) and Discover Financial Services (DFS) were both downgraded from neutral to sell by analysts at Merrill Lynch. They believe the firms could be hurt by a deterioration of consumer credit and spending. Capital One fell 5%, and Discover dropped 3.2%.
Gemstar-TV Guide International (GMST) agreed to be acquired by Macrovision (MVSN) in a $2.8 billion deal.
News Corp. (NWS) will put Rupert Murdoch's son James in charge of all European and Asian operations.
Palm Inc. (PALM) shares fell 13% after the firm said it would post a loss in the most recent quarter due to a a product delay and "unforeseen" warranty repairs.
Smith & Wesson Holding (SWHC) cut its outlook for next year's profits.
Yum Brands (YUM) expects earnings growth of at least 10% in 2008, while system sales should grow at least 5%.
European stock indexes finished higher on Friday. In London, the FTSE 100 index was up 1.07% to 6,554.9. In Paris, the CAC 40 index rose 0.79% to 5,718.75. Germany's DAX index gained 0.67% to 7,994.07.
Asian stocks were mixed. Japan's Nikkei 225 index rose 0.52% to 15,956.37. In Hong Kong, the Hang Seng index dropped 2.42% to 28,842.47. The Shanghai composite index rose 1.13% to 5,091.76.
The bond market had a stronger reaction than equities to the jobs report, which ING's Gendreau says in not unusual. Treasury sellers seemed to bet that the economy is growing faster than some had feared.
Treasuries saw a sell-off as the 10-year note tumbled 25/32 to 101-05/32 for a yield of 4.11%, and the 30-year bond plunged 50/32 to 106-27/32 for a yield of 4.57%.