Morning strength eases, but stocks remain in the black following positive employment report. Nonfarm payrolls were in line with estimates, but there remain concerns about wage pressures. This has lowered expectations for a rate cut by the Fed and this has led to some selling in midday action. As we head into a weekend, traders are not willing to make large trading decisions and this could keep stocks moving sideways throughout the rest of the session.
Nonfarm payrolls increased by 97,000 in February, in line with the 100K expected. December and January numbers were revised higher by a total of 55,000 as well. The unemployment rate fell a tenth to 4.5 percent with average hourly earnings up 0.4 percent. The biggest concern within the report is the increase in labor costs. On a year on year basis, earnings are up 4.1 percent. Though this remains a concern, it is common for wages to lag and this should at least keep the Fed on the sidelines for now.
In other economic news, the international trade data showed some narrowing to a deficit of $59.1 billion in January from $61.5 billion in December. Exports rose 1.1 percent with imports dipping 0.5 percent. Without petroleum included, the deficit fell a more robust 7.6 percent. Though the deficit is still a concern, economists are pleased to see some narrowing.
The sub-prime lending market has been a problem for many stocks, most notably New Century Financial (NEW). This financial stock is off nearly 20 percent Friday after the company announced it wasn't accepting loan applications. Merrill Lynch noted that the company could file for bankruptcy. NEW shares are just above $3, down from the $50 level just last year.
Shares of National Semiconductor (NSM) are higher by nearly 4 percent Friday following the company's earnings release last night. Though NSM saw a decline in profits, the company provided a better than expected outlook. The chip maker says inventory issues are behind it now and this has been met with buying on the Street. Overall, the Philly Semiconductor Index ($SOX) is up nearly a percent on the session.
If current gains hold, the major market indices will all see gains of more than one percent this week. It seems a bottom is forming, but we could see some consolidation following a lot of volatility the past few weeks.
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