According to the U.S. Bureau of Labor Statistics, 199k jobs were created in November, better than the +190k consensus, while private payrolls were up 150k, slightly under expectations. The unemployment rate fell from 3.9% to 3.7%, the lowest since July, as a large number of people entered the workforce. Big picture, the jobless rate has been under 4% for 22 consecutive months, the longest period since the 1990s.
Average hourly earnings rose 0.35% on a month-over-month basis and were 4.0% higher from year-ago levels, down from +4.1% in the prior month, and a fresh multi-year in annual wage growth. The labor force participation rate was 62.8, a slight uptick from October, and the highest since February 2020. Within the BLS report, motion picture jobs snapped back by 17k, and motor vehicle employment increased by 30k, indicating that strikes from October partially reversed in November.
The previous two months were revised lower by 35k, so there was a positive change in October payroll gains (+150k) to November (+199k). The U-6 underemployment rate moved down from 7.2% to 7.0%, indicating a firmer labor market. The Household survey, used to determine the unemployment rate, featured a strong 747k jobs gain. In all, this report does not support the case for rate cuts sooner rather than later, but the Fed is still expected to hold steady in its meeting next week.
November Employment Better Than Forecast
Unemployment Rate Drops, Monthly Payroll Gains Increase in November
U.S. Average Hourly Earnings Growth 4% YoY
In the report’s wake, equity futures ticked down just modestly, then recovered before the bell, while Treasury rates jumped higher. Expectations for Fed easing in 2024 also reversed slightly, and the U.S. Dollar Index ticked up on the generally strong report.
Fed Easing Expectations Retreat Slightly After Solid November Jobs Numbers
Yields Jump Post-NFP, 10yr Rate >4.2%
All told, the labor market continues to hang in there, and some of the general trends we have seen over the last six months continued, but there are few signs that a significant drop in employment is in the offing. Initial jobless claims remain low, and the ADP Private Payrolls reports are holding in the +100k to +200k range, on par with what the BLS is showing on a smoothed basis. Job openings are on the decline, helping in the Fed’s mission to cool demand, though. All of this appears consistent with an economy growing at around a 2% clip.
Let’s focus on what has been driving the stock market higher in 2023: large-cap growth. The SPDR® Portfolio S&P 500 Growth ETF seeks to track the performance of the S&P 500 Growth Index. The issuer notes that SPYG is a low-cost exchange-traded fund, or ETF, that seeks to offer exposure to S&P 500 (SP500) companies that display the strongest growth trends, particularly those with characteristics based on: sales growth, earnings change to price ratio, and momentum.
I have a hold rating on the fund entering 2024. I see the valuation (23.5x forward earnings) as somewhat pricey today, and we have historically seen switches between value and growth being preferred among investors when the calendar flips.
SPYG is a large ETF with more than $20 billion in assets under management, and it pays a small yield. Share-price momentum has been extraordinarily strong in recent months, and the fund boasts a small 0.04% annual expense ratio. Risk is considered somewhat low given the rally in 2023, but fast turns in macro conditions can change those figures quickly. Still, SPYG features high liquidity, with more than 1.9 million shares traded daily and a median 30-day bid/ask spread of just two basis points.
Coming into December, the growth factor was beating the value factor by a whopping 31 percentage points. Indeed, growth is more expensive than value, but the forward p/e ratio spread is actually historically narrow at just 4.2 points. Contrast that to just two years ago, when the difference was north of 13 P/E handles. Strong earnings growth among some of the biggest U.S. companies has dwarfed the bottom line advance in smaller value companies.
Growth Outperforming Value by 31ppt YTD
Growth & Value Forward Earnings Multiples
Digging into the portfolio, SPYG is highly concentrated, with the top 4 stocks comprising about one-third of the allocation. Thus, paying close attention to trends with Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), and Alphabet (GOOGL) is key. Furthermore, the Information Technology sector commands a more than 37% presence in the portfolio, and there is obviously very little exposure to higher-yield value shares. As a result, SPYG yields just 1.1% as of December 7, 2023.
SPYG: Holdings & Dividend Information
The Technical Take
A year ago, growth was steeply sagging on an absolute basis and relative to the value factor. I was admittedly bearish on SPYG in mid-December – a low was finally reached a month later. SPYG went on to break above its long-term 200-day moving average in Q1, and a 52-week high was notched by late July. A garden-variety correction took place in August through late October, but here we are near multi-year highs again.
But I see the fund near resistance in the low to mid-$60s – a spot that has seen selling pressure come about on a few previous occasions. A breakout above $64 would imply a bullish measured move price objective to just above $70 based on the $7 height of the current pattern. Support is seen in the $55 to $57 zone as the 200dma is now positively sloped at $59.
Overall, SPYG’s chart is constructive, and we are right near a key resistance point with ample support underneath the current price.
SPYG: Resistance Near $64, Upside Target To $70+ In-Play
The Bottom Line
I have a hold rating on SPDR® Portfolio S&P 500 Growth ETF heading into 2024. While valuations are not egregious on the style, it’s become common to see inflections in the growth vs. value trade as the calendar flips. Moreover, the stock market rally appears to be broadening out of the October low.