While equity index futures are still pointing to a lower open on Wednesday, they did trim some losses after the ADP Nonfarm Employment report showed strong gains in December. More than twice as many workers as expected found jobs last month, particularly in leisure and hospitality, trade, transportation, and utilities. Much of these gains may have occurred before the Omicron variant really hit the scene so we’ll have to wait and see if they stick.
Later today, the FOMC Meeting Minutes will be released and investors will have insight into what the Fed has been discussing, particularly related to tapering and future interest rate hikes.
One company that struggled to grow on Tuesday was Scott’s Miracle-Gro (NYSE:SMG). Scott’s fell 2.79% after providing guidance saying it would maintain its full-year earnings outlook, but its Hawthorne cannabis division expects a 40% decline in sales. The company cited the slowdown in the cannabis market and issues with the supply chain.
The ISM Manufacturing PMI was lower than expected, suggesting that manufacturers are seeing fewer orders. December was the 19th straight month of increases, but the slowdown may actually be a welcomed reprieve because it may provide relief to an already strained supply chain.
The JOLTS report also showed a decrease in job openings in November. The Great Resignation continues as the “quits” rate remained high. In the light of Wednesday’s ADP report, it may be that workers were simply quitting one job to take another job. Friday’s Employment Situation report could provide greater insights to these job market developments.
Many stocks turned bearish after the manufacturing and job opening announcements; the S&P 500 (SPX) was positioned for a new all-time high, but it turned negative after the reports came out. Once again, investors were focusing on value stocks prompting the S&P 500 Pure Value Index ($SP500PV) to rally 2.26% on the day.
Tech Heavy
As investors focus on valuations, they also focus on risk. Last year, China started cracking down on various market sectors, including gaming, real estate, gambling, and more. On Tuesday, Chinese regulators announced plans for a security review of various internet platforms.
Breaking Bonds: Bond yields may rise for a couple of reasons, like when the Fed increases short-term rates when the Fed stops buying bonds in the open market, and when investors choose to sell bonds in favor of other assets. The Fed hasn’t raised rates yet, but it is tapering its bond-buying programs, which allows yields to rise. However, the recent moves appear to be driven mostly by investors selling bonds.
Investors appear to be selling bonds in favor of value stocks. One reason investors may be favoring value stocks over bonds is that many of these value stocks have higher-than-average dividend yields. This means many value stocks offer potential price appreciation on top of quarterly dividend income.
TD Ameritrade® commentary for educational purposes only. Member SIPC.
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