Wall Street Ends Flat After Blowout Jobs Report

U.S. equity markets ended the session mixed after the October jobs report came in much better than Wall Street anticipated.

The Dow Jones Industrial Average was 48 points higher, or 0.27% to 17911. The S&P 500 slid a fraction of a point, or 0.03% to 2099, while the Nasdaq Composite rose 19 points, or 0.38% to 5147.

Financials saw the biggest gains during the session as they would benefit from higher rates. Meanwhile, utilities plunged as much as 4%.

Today’s Markets

The U.S. economy added far more jobs in October than Wall Street forecasted, pushing up expectations for a rate hike before the end of the year.

The Labor Department said the economy added 271,000 jobs in October, well above expectations for the addition of 180,000 jobs. The September figures were revised down to 137,000 new jobs from 142,000.

The unemployment rate in October, meanwhile, declined to 5% during the month, while Wall Street had anticipated it to hold steady at 5.1%. The labor force participation rate was unchanged at 62.4%, as expected. Average hourly earnings for the month saw a 0.4% bump higher, compared to expectations for a 0.2% rise, and September’s unchanged rate.

Manufacturing jobs were on Wall Street’s mind ahead of the October report thanks to weak data from the Institute for Supply Management that was released Monday. The figures showed manufacturing activity had fallen during October to the lowest rate since May 2013, and economists worried that slowdown could spread to other parts of the slowing global economy. But the Labor Department’s report showed factory jobs were unchanged during the month, compared to expectations for a loss of 5,000 jobs.

Meanwhile, the private sector also far outpaced expectations on job creation, adding 268,000 jobs compared to forecasts for 149,000.

Scott Colyer, CEO of Advisors Asset Management, said the report was quite a surprise to the upside, saying the blow-out figures reversed the “dismal numbers” from the prior month. Still, it’s a “bad news is good news” mentality on Wall Street.

“We’re seeing a spike in the dollar, which has downward pressure on earnings for companies relying on exporting overseas…history would show that today’s reaction might be a little confused, but over the next week, or month or year, when you get a jobs pickup like this, it’s a sign of a healthy economy and future profits,” he said.

The biggest question still remains: Was this report good enough to make the Fed move on interest rates before the end of the year?

Colyer said yes, however, there’s still a thorn that remains in the Fed’s side.

“We still have a labor force participation rate that did not change. That rate remains stubbornly low given our history of the U.S., and the trend is still for it to go down further. Meaning, people who are able to work are just dropping out of the workforce. That’s the only bad thing I saw. We haven’t reversed that trend yet, but that will come over years, not just over one month or two,” he added.

Earlier in the week, Fed Chief Janet Yellen, during testimony on Capitol Hill, left the door wide open to a December rate rise by explaining that the central bank has not yet made a final decision, and will continue to monitor all economic data between now and the December FOMC meeting.

Economists at Deutsche bank said while this jobs report helps solidify market expectations for a December move higher, they warned caution should still be exercised.

“There is still a significant amount of economic information, in particular, another employment report to be released before the December 15-16 FOMC meeting,” economists at Deutsche Bank said in a note.  “Given the strong tendency for both the financial markets and monetary policymakers to place inordinate weight on the last key pieces of data, it is really the November employment report…that will be critical to the FOMC’s December interest rate decision.”

Following the strong October report, Fed Funds futures were pricing in a 70% probability of a rate hike in December, up from 58% on Thursday.

Elsewhere in the market, global oil prices were lower after a seesaw week thanks to supply concerns. U.S. crude declined 1.68% to $44.44 a barrel, while Brent, the international benchmark, shed 1.05% to $48.26 a barrel.

Metals were also mostly lower as gold declined 1.49% to $1,087 a troy ounce, while silver fell 1.89% to $14.70 an ounce. Copper, meanwhile, slid 0.64% to $2.24 a pound.

Overseas, European markets were higher as traders there also parsed the U.S. jobs report and monitored developments after a disaster forced BHP Billton’s iron ore operations to shut down. The Euro Stoxx 50, which tracks large-cap companies in the eurozone, rose 0.53%, while the German Dax added 0.92%, the French CAC 40 gained 0.08%, and the UK’s FTSE 100 declined 0.17%.

In corporate news, the Obama administration rejected TransCanada’s (NYSE:TRP) application to build the Keystone XL oil pipeline. U.S. shares of the company slipped 5.6%.