US Stocks Mixed as Nonfarm Payrolls Report Shakes Markets: Tesla Soars, Fed Rate Cut Bets Rise, but Inflation Concerns Linger

US Stocks Mixed as Nonfarm Payrolls Report Shakes Markets: Tesla Soars, Fed Rate Cut Bets Rise, but Inflation Concerns LingerUS stock markets closed mixed on December 6th. The Dow Jones Industrial Average fell 0

US Stocks Mixed as Nonfarm Payrolls Report Shakes Markets: Tesla Soars, Fed Rate Cut Bets Rise, but Inflation Concerns Linger

US stock markets closed mixed on December 6th. The Dow Jones Industrial Average fell 0.28%, while the Nasdaq Composite rose 0.81%, and the S&P 500 gained 0.25%. Notably, the Nasdaq Composite and S&P 500 both hit new closing highs.

The "Magnificent Seven" tech giants showed varied performance. Amazon rose 2.94%; Meta Platforms (Facebook's parent company) increased by 2.44%; Alphabet (Google's parent company) Class A shares gained 1.20%; Apple slightly dipped 0.08%; Microsoft rose 0.21%; and Nvidia fell 1.81%. Tesla was a standout performer, surging 5.34% and adding $63.3 billion (approximately 460.3 billion) to its market capitalization overnight. Bank of America raised its 12-month price target for Tesla to $400 and maintained a buy rating, primarily based on optimistic expectations for Tesla's Full Self-Driving (FSD) technology and advancements in artificial intelligence.

Lululemon Athletica Inc. achieved its best single-day performance in six years, with its stock price jumping nearly 16%. This was driven by stronger-than-expected third-quarter results, an upward revision of its annual guidance, and the announcement of a $1 billion stock repurchase plan.

The cryptocurrency market also saw significant activity, with Bitcoin reclaiming prices above $100,000. This boosted cryptocurrency-related stocks, with Canaan Inc. surging over 35%, BitDigital rising over 9%, and Coinbase gaining over 7%.

The Nasdaq China Golden Dragon Index closed up 0.98%, with most popular Chinese stocks rising. NetEase Youdao's stock price increased by over 6%, Alibaba and JD.com both rose over 2%, and iQIYI and NetEase gained over 1%. On the downside, Gaotu fell over 4%, and New Oriental declined over 1%.

The US Bureau of Labor Statistics (BLS) released the highly anticipated November nonfarm payrolls report on the evening of December 6th (Beijing time), significantly impacting the market. The report showed that US nonfarm payrolls increased by 227,000 in November, exceeding the market expectation of 220,000. However, the US unemployment rate rose to 4.2%, higher than the anticipated 4.1% and the previous month's 4.1%, reaching its highest level since August 2024. Average hourly earnings increased by 4% year-on-year and 0.4% month-on-month, both exceeding market expectations of 3.9% and 0.3%, respectively.

Furthermore, the report revised upwards the job gains for the previous two months. September's nonfarm payroll increase was revised from 223,000 to 255,000, and October's from 12,000 to 36,000. The revised figures show a combined increase of 56,000 jobs in September and October compared to the initial data, resulting in a three-month average job growth of 173,000.

This employment report is crucial for the Federal Reserve's monetary policy decisions, influencing whether it will cut rates in December and January, and significantly impacting the path of the long-term neutral rate. Following the data release, traders increased their bets on rate cuts. Market implied probabilities showed a greater than 87% chance of a 25-basis-point rate cut at the Fed's next meeting on December 18th, up from 67% before the report.

Despite persistent pricing pressures, Fed officials have begun cutting interest rates to stimulate the economy and ensure a healthy labor market. Fed Chair Powell stated earlier this week that the half-percentage-point rate cut in September was intended to send a "strong signal" of the Fed's support for the labor market.

However, interpretations of the employment report are divided. Some analysts argue that if October's employment weakness was solely due to temporary factors (hurricanes and strikes), then the November rebound should have been stronger. The revised data might suggest that current job growth is nearing stagnation, far below what's needed to maintain stable unemployment, implying a potential further rise in unemployment. Seema Shah, Chief Global Strategist at Principal Global Investors, stated that there are cracks in the labor market that require the Fed's attention. At the same time, the continued strong growth in average corporate wages necessitates a cautious approach to rate cuts by the Fed. While a December rate cut is anticipated, the Fed may slow the pace of cuts in subsequent meetings by early 2025.

Eric Merlis, Managing Director and Co-Head of Global Markets at Citizens, believes the November nonfarm payrolls report shows an expected rebound in hiring, with no major surprises. The slight increase in the unemployment rate and the decrease in participation rate should convince the Fed to continue its gradual easing path at the December meeting.

However, inflation risks remain a persistent concern. Nouriel Roubini ("Dr. Doom") warned in a recent broadcast that inflation risks in the US remain. He suggests that if Trump implements policies that easily lead to inflation risks, the Fed may significantly reduce its expected rate cut magnitude for next year at the December meeting, and in an extreme case, may even revert to a rate hike cycle, thereby reducing the possibility of stagflation. Although a "Trump 2.0" overall policy is favorable for economic growth, Roubini believes that protectionist policies concerning the labor market and tariffs will weaken economic growth by affecting inflation expectations (long-term neutral rate). Roubini warns that implementing large-scale tariffs, deporting millions of people, and driving massive fiscal deficits, leading to rising bond yields and slower economic growth, could plunge the US into a scenario of significantly slowed economic growth coupled with escalating inflation.

Other economists have expressed similar concerns, arguing that Trump's proposed domestic tax cuts, deportation of immigrants, and imposition of high tariffs will inevitably propel US inflation, requiring the Fed to maintain high interest rates. However, Trump has also called for significant rate cuts by the Fed, creating an unavoidable conflict. Olivier Blanchard, former chief economist of the International Monetary Fund (IMF), believes the risk of conflict between the Trump administration and the Fed is very high, as a rate hike or maintenance of high interest rates by the Fed would obstruct the Trump administration's goals.

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