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A cool jobs report heats up markets

Job seekers speak with prospective employers during a City of Los Angeles career fair offering to fill vacancies in more than 30 classifications of jobs on November 2, 2023 in Los Angeles, California. 

Frederic J. Brown | AFP | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Winter chill in jobs
U.S. nonfarm payrolls increased by 150,000 in October. That’s less than the estimated increase of 170,000 and sharply lower than September’s growth of 297,000, which was itself revised lower from the initial 336,000. The unemployment rate unexpectedly rose to 3.9%, the highest level since January 2022, while average hourly earnings increased less than forecast.

Winning week
Stocks and bonds in the U.S. rallied in tandem on Friday as markets digested jobs data and rebounded from October lows. Europe’s Stoxx 600 index ticked up 0.2%. Siemens Energy’s 9% jump, on news that it might sell its stake in India’s Siemens Ltd, helped to defray Maersk’s 17% plunge after the shipping giant said profits would come in at the low end of its prior forecast.

Musk’s Grok
Elon Musk’s new AI company, xAI, released Grok, a generative artificial intelligence chatbot similar to ChatGPT. Grok is supposed to have “a bit of wit,” “a rebellious streak” and should answer the “spicy questions” other AI chatbots might dodge, according to a statement from xAI. Users will eventually be able to access Grok as part of X Premium+, which costs $16 per month.

Cash buffet
Warren Buffett’s Berkshire Hathaway reported $10.76 billion in operating earnings for the third quarter, 40.6% higher than the same period last year. The conglomerate now has a cash pile of $157.2 billion, even higher than the record $149.2 billion it had in the third quarter of 2021. But Buffett’s company did register a loss of $24.1 billion in the third quarter because of drops in Apple’s shares.

[PRO] Stars aligned
Stocks started off strong in November — but for a certain group of stocks, everything is aligning to push them even higher, according to Piper Sandler. The investment bank screened for stocks that will benefit from a convergence of positive factors that are happening now, and came up with three stocks it thinks are top names to own.

The bottom line

U.S. jobs growth in October was nearly half of September’s; unemployment ticked up; monthly wage growth was slightly lower than expected. That’s bad news for workers. But, as CNBC’s Jeff Cox puts it, “Bad news for the economy is good news for the stock market … as long as it doesn’t get too bad.”

Why is the stock market cheering an early winter chill in the jobs market? Two reasons: A tighter labor market’s likely to put a dent in inflation, which, in turn, should halt interest rates hikes — both of which are anathema to stocks.

“The fact that this report followed other weaker-than-expected economic data points this week may encourage investors who have been waiting for a less-hawkish Fed,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley’s Global Investment Office.

Indeed, following the jobs report, markets think there’s only a 4.6% chance the Fed will hike rates at its December meeting, according to the CME FedWatch Tool.

Both the stock and bond market celebrated this news. The S&P 500 rose 0.94%, the Dow Jones Industrial Average added 0.66% and the Nasdaq Composite jumped 1.38%. All three indexes closed above their 200-day and 50-day moving averages, a sign of continued positive momentum.

On a weekly basis, the S&P climbed 5.85% and the Nasdaq popped 6.61%, the best week for both indexes since November 2022. The Dow gained 5.07%, its best week since October 2022.

Meanwhile, bond yields tumbled (which means bond prices rose). The 2-year Treasury yield slid by around 10 basis points to 4.845% and the 10-year yield dropped 9 basis points to 4.577%. When contrasted against the 10-year’s 5% yield last month, that’s truly a staggering fall.

But that doesn’t mean a sustained rally in stocks, or that the higher-for-longer interest rate environment’s over. Historically, when the Fed stars cutting — and if it does so abruptly — that means the economy’s faltering so much it needs a boost from monetary policy. As Michael Arone, chief investment strategist at State Street Global Advisors, warned, “Investors who are eager for the Fed to be cutting rates should be careful what they wish for.”

— CNBC’s Jeff Cox contributed to this report.

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