Rally stalls ahead of crucial jobs report

General market commentary

Major indices largely held steady on Thursday, closing lower ahead of the crucial November nonfarm payrolls report. Despite this, the S&P 500 reached another intraday high, supported by strength in consumer discretionary shares, particularly airlines, driven by optimism about the economy. The day's headline was Bitcoin surpassing $100,000 for the first time, signalling strong demand for high-volatility, high-beta assets. In addition, equity exchange-traded funds saw their largest inflows in three years last month, and investor exposure to equities is at its highest since 2021, raising concerns about the sustainability of bullish sentiment. While low volatility and market momentum remain, they could also be contrarian indicators suggesting a potential cooling in the rally.

The nonfarm payrolls report, due for release today, is expected to show robust jobs growth of 218,000, bouncing back from the October figure of just 12,000, which was influenced by adverse weather and strikes. The unemployment rate is forecast to remain steady at 4.1%, with average hourly earnings expected to rise by 0.3% month-over-month. The broad market, however, is showing signs of narrowing breadth, with only 59% of S&P 500 shares above their 50-day moving averages, down from 75% a couple of weeks ago. This suggests that fewer equities are participating in the rally, raising concerns about the health of the market. On the positive side, consumer discretionary and financial shares continue to lead, bolstered by investor confidence in economic growth into 2025, while the technology and communication sectors have lagged behind as risk-on sentiment has waned.

Latest market update

• Most Asian equities declined on Friday, mirroring overnight losses on Wall Street, with South Korean shares particularly pressured by ongoing political unrest. In contrast, Chinese shares rose sharply, buoyed by hopes for economic stimulus ahead of a key policy meeting next week, while other regional markets also saw modest declines.

• European shares are expected to open lower, with Euro Stoxx 50 futures down 0.4%, amid the release of secondary data. U.S. equity futures are slightly lower, with cautious trading ahead of key market events, although after-hours gains were seen in Ulta Beauty, GitLab, and DocuSign following stronger-than-expected earnings.

• The Euro STOXX 50 gained around 0.5% on Thursday, extending its recent upward momentum despite sectoral volatility. Banking and travel shares led the rally, while oil and gas equities saw a slight dip of 0.4%, with the overall index reaching its highest level since mid-November.

• The US dollar traded below 106 on Friday, with losses against most major currencies, while strengthening against the Australian dollar. Against the euro, the dollar was priced at 1.0573, reflecting relatively stable performance for the week.

• The yield on the US 10-year Treasury note held steady at around 4.18% on Friday as investors awaited the upcoming November jobs report, which could impact the Federal Reserve's rate decisions. The market is pricing in a 71% chance of a 25 basis point rate cut in December, driven by weaker-than-expected job data and a cooling labour market.

• Oil prices edged lower in Asian trade this morning, with a middling weekly performance reflecting concerns over weakening demand despite OPEC+ extending supply cuts until 2025. Traders remained cautious ahead of key economic data, while geopolitical tensions and competition from non-OPEC producers added to market uncertainty.

• Bitcoin surged to a record high of $101,438 on Thursday, driven by optimism over pro-crypto regulations under President-elect Donald Trump and his appointment of Paul Atkins to lead the SEC. The cryptocurrency also gained support from Jerome Powell’s comparison of Bitcoin to gold, boosting its appeal as a speculative asset.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

• American Airlines soared nearly 17% after raising its fourth-quarter revenue outlook, while Delta accelerated 2.35% and United Airlines jumped 3.21% amid signs of solid U.S. travel demand approaching the holidays. Southwest also climbed after lifting guidance.

• Lululemon Athletica raised its full-year revenue and earnings forecasts, driven by strong demand in the U.S. and growth in its international business, particularly in China. The company also approved a $1 billion increase to its equity repurchase programme, with shares rising 9.2% in after-hours trading.

• Ulta Beauty raised its annual profit forecast, citing strong demand for perfumes and makeup, particularly from younger shoppers, and shares surged over 12%. The company also slightly increased its sales forecast and reported a 1.7% rise in quarterly net sales, exceeding analysts' expectations.

• DocuSign's shares surged 14.6% after the company reported third-quarter earnings that exceeded expectations, with strong growth driven by its Intelligent Agreement Management platform. The company also provided optimistic guidance for the current quarter and full fiscal year, with projected revenue surpassing analyst forecasts.

• Shares of Uber and Lyft dropped by around 10% each, following Waymo's announcement to expand its autonomous ride-hailing service to Miami in 2025. The move is seen as increasing competition for Uber and Lyft, as autonomous services like Waymo and Tesla could challenge their future position in the robotaxi market.

• Boeing's plea deal over the 737 MAX crashes was rejected by a U.S. judge, who criticised a diversity provision and the lack of adequate accountability for the 346 deaths. Victims' families hailed the ruling, calling for a renegotiated agreement to ensure justice and stronger responsibility from Boeing.

• Taiwan Semiconductor Manufacturing is in talks with Nvidia to produce Blackwell AI chips at its new Arizona facility, which is set to begin production early next year. While initial manufacturing will take place in Arizona, the chips will be sent to Taiwan for advanced packaging, and TSMC's Arizona project has received significant US government subsidies to support its development.

• Tesla climbed 3.2% after sharing more details about its robotaxi, called "Cybercab." Shares are nearing a pivotal area near $373, which they haven't closed above since April 2022, Barron's noted.

• Fiserv's shares dropped 5.5% after CEO Frank Bisignano was nominated by President-elect Donald Trump to be the commissioner of the Social Security Administration. Bisignano, known for his leadership at JPMorgan Chase and Citigroup, led Fiserv through its acquisition of First Data in 2019 and now faces Senate confirmation for the new role. This decline may present a buying opportunity to invest in a quality fintech company at a lower price.

• Bernstein analysts reiterated their "Outperform" rating and $511 price target for Microsoft, highlighting the company's growing AI revenue, particularly from Azure AI and Microsoft 365 Copilot. Despite recent stagnation in the share price, Bernstein remains optimistic, predicting investor sentiment will shift positively within the next year.

• Bank of America raised its price target for Tesla to $400, up from $350, following a visit to the Giga Texas factory, citing increased confidence in the company’s growth prospects. The bank highlighted Tesla's advancements in Full Self-Driving (FSD) and its robotaxi plans, along with progress in AI and robotics, positioning the company strongly for long-term growth.

• Jefferies initiated a "hold" rating on Walt Disney Company with a target price of $120, highlighting profitability growth in its streaming division, but noting challenges in its parks business. While streaming is expected to drive significant income growth, concerns over reliance on price increases in the parks segment and difficulties scaling streaming profitability pose risks.

• Applied Materials dropped 5% following a downgrade to underweight from equal weight by Morgan Stanley. The analyst sees a weaker operating environment for two of AMAT's end markets in the first half of 2025. This downgrade further justifies our stance to exit the equity a couple of months ago.

• Jefferies raised its price target for Oracle to $220 from $190, citing strong growth in infrastructure and AI initiatives, as well as optimism for fiscal 2024. Despite Oracle's premium valuation, Jefferies maintained a "buy" rating, emphasising the importance of converting its backlog into revenue growth to meet market expectations.

• RBC Capital Markets upgraded TotalEnergies to "outperform," citing the company's strong growth prospects, strategic positioning, and competitive advantage in integrating renewables with traditional energy. The new price target of €80 reflects confidence in its ability to deliver robust shareholder returns, making it an attractive option for long-term investors.

• Robinhood's investor day on December 4 revealed its strategy to capture a $600 billion total addressable market, boosting analysts' optimism, with Mizuho raising its price target from $34 to $60. KeyBanc and Piper Sandler also raised their target prices, highlighting the company's growth potential, strong product roadmap, and expanding market share.

• Bernstein analysts have upgraded Trip.com Group to Outperform, with a target price of $85, citing stable travel demand and an ongoing recovery in Chinese tourism, particularly in outbound and domestic flights. The company is expected to benefit from continued growth in travel trends, bolstered by recent government stimulus measures aimed at boosting local economic activity.

• Raymond James analysts raised their outlook for Roblox, citing strong user growth and promising strategies around Robux purchases, which helped boost the company's shares by more than 6%. The analysts increased their price target to $63 and revised their 4Q and 2025 estimates, anticipating higher bookings and improved margins.

Upcoming data and events

Markets are focused on the upcoming U.S. nonfarm payrolls report, which is expected to provide insights into jobs growth, wages, and unemployment, with revisions and sector trends under particular scrutiny. Additionally, the preliminary University of Michigan Consumer Sentiment report and updated inflation expectations will offer further clues about the economic outlook.

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