Stocks surge after better-than-expected jobs report

Although the labor market as a whole recovered the massive amount of jobs lost at the onset of the pandemic, not all industries can say the same:

US stocks soared Friday, as slowing wage growth and a downbeat report about the services sector led to a "bad news is good news" rally. 

Investors are betting that the Federal Reserve will raise rates by only a quarter-of-a-point next month. Wall Street is also hoping that the economy could wind up having a soft landing, meaning that a recession can either be avoided or would be short and mild. Stocks ended this volatile first week of 2023 in positive territory thanks to Friday's surge. 

In corporate news, Costco (COST) was one of the top gainers in the S&P 500, rising more than 7% after the warehouse retailer reported strong December sales. WWE (WWE) soared nearly 20% on the news that founder Vince McMahon was returning to the "sports entertainment" company's board, leading to speculation that WWE could soon be put up for sale. 

The Dow rose about 700 points, or 2.1%.

The S&P 500 rallied 2.3%. 

The Nasdaq Composite ended the day up 2.6%.

As stocks settle after the trading day, levels might still change slightly.

The labor market wasn't just hot in 2022, it was historic.

The US economy not only surpassed pre-pandemic employment levels but also added about 4.5 million jobs during the course of last year. It was the second-highest annual employment gain in records that go back more than 80 years, Bureau of Labor Statistics data shows. (The highest on record was 2021, with 6.7 million jobs added, while 2020 set a record for the most jobs lost in a year with 9.3 million).

Delving into the seasonally adjusted data, here's a look at the job growth (and losses) across various sectors and industries.

At a high level, all major sectors of the economy finished the year in the black:

Here's a look at how some of that activity breaks down in sub-sectors:

Now that's what we call a market rally!

All 30 stocks in the Dow were in positive territory Friday. Stocks were at their highs of the day with less than an hour and a half to go before the end of trading. The market is set to close the holiday-shortened week with strong gains.

Investors were happy to see that wage growth cooled in the December jobs report as well as lackluster data about the services sector in a separate report. Bad news was good news because Wall Street was hopeful the Federal Reserve may further slow down the size and pace of rate hikes.

It's been a wild week of trading, with the market kicking off the new year on Tuesday with a loss. Stocks tumbled Thursday as well. Sandwiched in between that though was a Wednesday rebound. But after all is said and done, the three major indexes are each up about 1% during the first few days of 2023.

The Dow was up about 700 points, or 2.1%, in late afternoon trading.

The S&P 500 gained 2.3%. 

The Nasdaq Composite surged 2.5%.

Stocks may be rallying Friday, but it's been an incredibly bumpy ride the past few weeks. As investors continue worrying over the economy, inflation, interest rates and corporate earnings, one classic safe haven asset has gotten a big boost: gold.

The precious metal was up 1% Friday and is now trading around $1,850 an ounce. That's its highest level since May. Gold is now on a three-week winning streak. It rallied more than 4% in December, following a nearly 7% surge in November.

Some investors are attracted to gold in times of turmoil because it's a so-called hard asset, meaning that because there's a finite amount, its value tends to be less subject to the whims of governments—which can print more or less of their currencies when they need to.

Gold also often performs poorly when the US dollar, another classic safe haven, is doing well. Along those lines, gold's recent rally has taken place as the greenback has weakened over the past few months.

And gold is certainly less volatile than bitcoin and other crypto assets that some traders had started to refer to as "digital gold."

So if the dollar doldrums persist and cryptos continue to crash, gold could once again approach the $2,000 milestone that it briefly topped last year. Gold could also flirt with record highs of near $2,100 an ounce from the peak pandemic days of summer 2020.

The monthly jobs report showed that some of the biggest gains were in industries such as leisure and hospitality, health care, and accommodation and food services, which all were hit hard during the pandemic.

There were also notable monthly job losses in technology and interest-rate-sensitive sectors that surged during the pandemic and are now rebalancing as consumers shift spending toward services. 

Industries such as information, finance, retail, transportation, and professional and business services all shed jobs between November and December.

Some of those losses are likely an effect of the waves of mass layoffs hitting the tech industry, said Ken Kim, a senior economist at KPMG.

"We are seeing a little bit of spread to other areas," he told CNN. 

Jobs added by major sector between November and December 2022

Total: +223,000 to 153.7 million

Mining and logging: +4,000 to 644,000

Construction: +28,000 to 7.78 million

Manufacturing: +8,000 to 12.9 million

Wholesale trade: +12,000 to 5.9 million

Retail trade: +9,000 to 15.8 million

Transportation and warehousing: +4,700 to 6.5 million

Utilities: +1,600 to 544,400

Information: -5,000 to 3.1 million

Financial activities: +5,000 to 9 million

Professional and business services: -6,000 to 22.4 million

Education and health services: +78,000 to 24.9 million

Leisure and hospitality: +67,000 to 16.1 million

Government: +3,000 to 22.4 million

Source: Bureau of Labor Statistics

Wall Street's roller coaster ride continued Friday morning, with the three major indexes swinging back into bull mode by late morning after the Dow and S&P 500 opened modestly higher — then gave up nearly all their gains. The tech-heavy Nasdaq had even briefly dipped into negative territory.

Why the rally? Another "bad but good" economic report may have been the catalyst. Stocks moved to their highs of the day after the Institute for Supply Management's services index unexpectedly contracted. That appeared to give investors more hope that the Federal Reserve will slow its pace of rate hikes.

The Dow was up more than 535 points, or 1.6%, in late morning trading Friday.

The S&P 500 gained 1.5%. 

The Nasdaq Composite rose 1.5%.

The December jobs report suggests that the economy is still in decent shape. Employers added more jobs than expected and the unemployment rate is back near a half-century low. Wages are growing, albeit not as rapidly as they were a few months ago. But another economic report that came out Friday morning paints a slightly different picture.

The Institute for Supply Management's (ISM) Services Index, a key measure of economic activity outside of the manufacturing sector, was much lower than what economists were expecting and could be another indicator that the economy is heading into a recession.

The ISM Services reading came in at 49.6% for December...well below November's 56.5% level and forecasts for about 55%. But what's most alarming is the fact that the number dipped below 50%. That is a sign of contraction. The last time the index was this low was during the brief Covid-induced recession in May 2020.

ISM added that its new orders index, another sign of future economic activity, also fell below 50% for the first time since May 2020.

The jobs market might finally start to show some signs of weakness in the coming months as well.

"Employment contracted due to a combination of decreased hiring due to economic uncertainty and an inability to backfill open positions," said Anthony Nieves, chair of the ISM services business survey committee, in the report.

At first glance, investors saw this morning's December jobs report as something to celebrate. The Dow shot up about 300 points in early trading as the last report of the year showed that wage growth had eased.

It didn't last long, though.

That's because the data was mixed: Wage increases are slowing, but unemployment fell to historic lows. This indicates the Fed may remain on its hawkish policy path of aggressive interest rate hikes.

Investors appear to be befuddled as they dig deeper into the report. The Dow and S&P 500 have cut their earlier gains and the Nasdaq briefly tipped into negative territory.

"This report should add to investor confusion and heighten market volatility in the weeks ahead," wrote John Lynch, chief investment officer for Comerica Wealth Management in a note. "It also complicates the Fed’s battle against inflation...A 50-basis-point move is back on the table for the next FOMC meeting in a few weeks."

Andrew Patterson, senior economist at Vanguard echoed the confusing nature of the report: "A mixed report with strong headline payroll numbers but falling wages. Not much in the way of firm evidence for the Fed to base their 25 v 50 bps decision at the next meeting on," he wrote.

Given the befuddling report, Patterson said, he expects more focus and importance will be placed on next Thursday's CPI inflation report.