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End of Day Brief - Friday Mar. 5 - Stocks close higher after midday reversal

Stocks close higher after midday reversal

Equity futures climbed in pre-market trading following a firmer than anticipated employment report, leading to a higher open for the major averages. However, those early gains failed to hold and the major averages were in the red at midday, with the Nasdaq once again the laggard. The market turned again a bit after noon and became decidedly positive, gaining momentum into the close to break the recent losing streak.

ECONOMIC EVENTS: In the U.S., nonfarm payrolls increased 379,000 in February and the unemployment rate slipped to 6.2% from 6.3%. The trade deficit widened 1.9% to $68.2B in January. In energy news, Baker Hughes reported that the U.S. rig count is up 1 from last week at 403 with oil rigs up 1 to 310.

WTI crude hit a near two-year high of $65.76 in early trading in New York as additional gains followed the much stronger than expected February employment report. Prices ramped up on Thursday after OPEC+ left production levels unchanged through April and Saudi Arabia extended its voluntary 1.0M barrel per day cut until then as well.

In Capitol Hill news, The Hill reported that the Senate voted against a proposal sponsored by Senator Bernie Sanders to raise the federal minimum wage to $15 an hour. Seven Democrats, as well as one independent who caucuses with Democrats, voted to reject the proposal, including Joe Manchin, Kyrsten Sinema, Jon Tester, Jeanne Shaheen, Maggie Hassan, Chris Coons, Tom Carper, and Angus King, according to The Hill.

TOP NEWS: Shares of Broadcom ($AVGO) were 1.5% lower after the company reported what Deutsche Bank analyst Ross Seymore called a "solid beat/raise" in its fiscal Q1. With catalysts in networking and wireless and a software strategy that he said is "now gelling," Morgan Stanley analyst Craig Hettenbach advises that he would add to positions in Broadcom as semi stocks pull back.

In other earnings news, shares of Costco ($COST) slipped fractionally after what DA Davidson analyst Michael Baker called a "fairly sizable" Q2 earnings miss.

Shares of Virgin Galactic ($SPCE) fell almost 10% after it was disclosed a filing with the SEC that chairman Chamath Palihapitiya sold 6.2M shares of the company's stock at an average price of $34.32 in a series of transactions this week. Following the transactions, Palihapitiya still has a 15.75M share stake in Virgin Galactic that he holds together with his investment partner Ian Osborne, the filing shows.

Shares of Norwegian Cruise Line ($NCLH) were 12.3% lower after the company announced plans to sell roughly 47.58M ordinary shares. Cruise line peers Carnival ($CCL) and Royal Caribbean (RCL) followed Norwegian lower with slides of 4.8% and 5.6%, respectively.

In COVID-19 news, Health Canada confirmed it has authorized the COVID-19 vaccine manufactured by Janssen, a Johnson & Johnson ($JNJ) company.

Meanwhile, CNBC reported that trading platform Robinhood has chosen the Nasdaq ($NDAQ) for its eventual initial public offering. The company has not yet filed officially for the listing, according to CNBC.

MAJOR MOVERS: Among the noteworthy gainers was Sify Technologies ($SIFY), which rose almost 46% after Bloomberg reported that Blackstone ($BX) is in exclusive talks to acquire a minority stake in the company. Also higher was Waitr Holdings ($WTRH), which gained 7% after announcing an expansion into the cannabis market.

Among the notable losers was Medallia ($MDLA), which declined 16% after reporting quarterly results and agreeing to acquire Decibel for $160M in cash. Also lower was Certara ($CERT), which fell 13.6% after reporting preliminary quarterly results.

Reviewing Friday's economic data:

  • The February Employment Situation Report was much better than expected on the payrolls front. The payrolls increase is the highlight of the report and is apt to be the lead headline when it comes to talking about the report; however, there is a soft underbelly to the report that should not go unnoticed. The labor force participation rate was unchanged at 61.4% (down from 63.3% a year ago), the U-6 unemployment rate is still high at 11.1%, and persons unemployed for 27 weeks or more accounted for 41.5% of the unemployed versus 39.5% in January. The pace of hiring might have picked up in February, yet the travails of the long-term unemployed did as well.
    • The key takeaway from the report is that it will be seen as a sign of even better things to come for the labor market, which bodes well for growth prospects. The increase in nonfarm payrolls was the strongest since October and the best pace for February in more than 20 years, which is encouraging in that it came in front of more states seemingly destined to relax Covid restrictions in coming months as vaccination rates improve.
  • The January trade deficit widened to -$68.2 billion ( consensus -$67.5 billion) from a downwardly revised -$67.0 billion (from -$66.6 billion) in December. The widening in the deficit was a byproduct of exports increasing less than imports.
    • The key takeaway from the report is that trade activity will be imputed as a drag on Q1 GDP growth for now as the real trade deficit in January was 2.4% more than the fourth quarter average.
  • Consumer credit decreased by $1.3 bln in January after increasing a downwardly revised $8.8 bln (from $9.7 bln) in December.
    • The key takeaway from the report is that revolving credit decreased for the tenth time over the last 11 months dating back to February, which preceded the initial pandemic lockdown period taking hold in the U.S.

  • Russell 2000 +11.0% YTD
  • Dow Jones Industrial Average +2.9% YTD
  • S&P 500 +2.3% YTD
  • Nasdaq Composite +0.3% YTD

Market Snapshot
SP 5003841.94+73.47(1.95%)
10-yr Note -1/321.573
NYSEAdv 2479 Dec 692 Vol 1.4 bln
NasdaqAdv 2682 Dec 1192 Vol 7.6 bln

Industry Watch
Strong: Energy, Communication Services, Materials
Weak: Consumer Discretionary

Moving the Market

-- Market recovers intraday decline and closes at session highs

-- February employment report showcased strong jobs growth

-- 10-yr yield briefly matched last week's high of 1.61% before settling unchanged at 1.55%

Disclosure: I may trade in the ticker symbols mentioned, both long or short. My articles represent my personal opinion and analysis and should not be taken as investment advice. Readers should do their own research before making decisions to buy or sell securities. Trading and investing include risks, including loss of principal.

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