The major domestic equity indexes snapped a three-day rally on Friday as Apple shares fell following a disappointing forecast and the White House dampened optimism over U.S.-China trade talks.
Concerns that a trade deal between the United States and China may not be imminent reined in a rally in world equity markets and reversed gains on Wall Street on Friday, while strong U.S. wage growth boosted U.S. bond yields.
Markets had earlier climbed on hopes that the world’s two biggest economies were mending their shaky trade relations.
A steep decline in shares of Apple further weighed on sentiment after Apple warned that sales during the crucial holiday quarter would likely miss expectations.
White House economic adviser Larry Kudlow told CNBC that while President Donald Trump plans to meet Chinese President Xi Jinping later this month, he has not asked U.S. officials to draw up a proposed trade plan, contradicting a report earlier in the day that had buoyed hopes of a trade dispute resolution.
That erased early gains in stocks and curtailed a rally in global markets that had lifted emerging market stocks by their largest daily gain since 2016.
Apple’s shares fell 6.6 percent, taking its market value below $1 trillion, after the company said sales for the final quarter would likely miss expectations.
Job growth rebounded sharply in October and wages recorded their largest annual gain in 9-1/2 years, pointing to further labor market tightening that could encourage the Federal Reserve to raise interest rates again in December.
Oil prices were weighed down by a report that the U.S. government has agreed to let eight countries, including close allies South Korea and Japan, as well as India, keep buying Iranian oil after Washington re-imposes sanctions.
U.S. crude fell 1.13 percent to $62.97 per barrel and Brent closed at $72.68, down 0.29 percent on the day.
Job Growth and Wages Up Sharply
job growth rebounded in October and wages recorded their largest annual gain in 9-1/2 years, pointing to further labor market tightening that will likely keep the Fed on track to raise interest rates again in December.
The Labor Department’s closely watched monthly employment report on Friday also showed the unemployment rate steady at a 49-year low of 3.7 percent as 711,000 people entered the labor force, in a sign of confidence in the jobs market.
Sustained labor market strength could ease fears about the economy’s health following weak housing data and stalling business spending.
Nonfarm payrolls increased by 250,000 jobs last month as employment in the leisure and hospitality sector bounced back after being held down by Hurricane Florence.
There were also large gains in manufacturing, construction and professional and business services payrolls. However, data for September was revised downward to 118,000 jobs instead of the previously reported 134,000.
The Labor Department said Hurricane Michael, which struck the Florida Panhandle in mid-October, “had no discernible effect on the national employment and unemployment estimates for October.”
Average hourly earnings rose five cents, or 0.2 percent, in October after advancing 0.3 percent in September. That raised the annual increase in wages to 3.1 percent, the biggest gain since April 2009, from 2.8 percent in September.
Employers also increased hours for workers last month. The average workweek increased to 34.5 hours from 34.4 hours in September.
Strong annual wage growth mirrors other data published this week showing wages and salaries rising in the third quarter by the most since mid-2008. Hourly compensation also increased at a brisk pace in the third quarter.
Firming wages support views that inflation will hover around the Fed’s 2.0 percent target for a while. The personal consumption expenditures price index excluding the volatile food and energy components, which is the Fed’s preferred inflation measure, has increased by 2.0 percent for five straight months.
The Fed is not expected to raise rates at its policy meeting next week, but you could see an increase in December.
Employers, looking to find qualified workers, are raising wages. There are a record 7.14 million open jobs. Amazon announced last month that it would raise its minimum wage to $15 per hour for U.S. employees starting in November. And workers at United States Steel are set to receive a substantial pay increase.
Employment gains have averaged 218,000 jobs per month over the past three months, double the roughly 100,000 needed to keep up with growth in the working-age population. That is seen supporting the economy through at least early 2019.
The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, increased two-tenths of a percentage point to 62.9 percent last month.
A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, fell to 7.4 percent last month from 7.5 percent in September. The employment-to-population ratio rose two-tenths of percentage point to 60.6 percent, the highest since January 2009.
Last month, employment in the leisure and hospitality sector increased by 42,000 jobs after being unchanged in September. Retail payrolls rose by only 2,400, likely restrained by layoffs related to the Steinhoff’s Mattress Firm bankruptcy as well as some store closures by Sears Holdings.
Construction companies hired 30,000 more workers in October. Jobs in the sector have been increasing despite weakness in the housing market. Government payrolls rose by 4,000 jobs in October.
Manufacturing employment increased by 32,000 jobs in October after adding 18,000 positions in September. Job gains in the sector, which accounts for about 12 percent of our domestic economy, could slow after a survey on Thursday showed a measure of factory employment fell during October.
So far, manufacturing hiring does not appear to have been affected by the Trump administration’s protectionist trade policy, which has contributed to capacity constraints at factories. We are locked in a bitter trade war with China as well as tit-for-tat tariffs with other trade partners, including the European Union, Canada and Mexico.
Despite the protectionist measures, the trade deficit continues to deteriorate. In a separate report on Friday, the Commerce Department said the trade gap increased 1.3 percent to $54.0 billion in September, widening for a fourth straight month.