Wall Street leaps after strong US jobs report
Stocks moved higher on Friday after a strong report on the US job market suggested a recession may not be as close as Wall Street had feared.
The S&P 500 leaped 1.5 per cent for the latest surge in a rally that has vaulted it nearly 20 per cent since mid-October.
That put Wall Street’s main measure of health on the edge of entering what is called a bull market despite a long list of challenges.
The Dow Jones Industrial Average rallied 701 points, or 2.1 per cent , while the Nasdaq composite gained 1.1 per cent .
They got a boost after a report showed employers unexpectedly accelerated their hiring last month.
It is the latest signal that the job market remains remarkably solid despite much higher interest rates, and it offers a hefty pillar of support for an economy that has begun to slow.
Areas of the market that do best when the economy is healthy led a widespread rally, including stocks of industrial companies, energy producers and banks.
Exxon Mobil rose 2.3 per cent as prices for crude oil climbed on hopes that a resilient economy would burn more fuel.
Perhaps more importantly for markets, the Labour Department’s monthly jobs report also showed a slowdown in increases for workers’ pay even as hiring strengthened.
While that may discourage workers trying to keep up with prices at the register, investors believe slower wage gains will mean less upward pressure on inflation across the economy.
That in turn could allow the Federal Reserve to take it easier on its hikes to interest rates meant to lower inflation.
High rates do that by slowing the economy and hurting investment prices, and they have already caused pain for the banking and manufacturing industries.
The unemployment rate also rose by more than expected last month, moving up to 3.7 per cent from a five-decade low.
That implies a bit more slack in the job market and seems to conflict with the gangbusters hiring numbers, whose data comes from a separate survey.
“The reality is probably somewhere in between,” said Brian Jacobsen, chief economist at Annex Wealth Management.
“One thing that is striking is that if you compare aggregate payrolls today to the pre-Covid trend, we still have more than a four million job hole to fill in,” he said.
“Covid led to strange times, a strange recovery and an even stranger slowdown.”
Following the report, traders were largely expecting the Fed to hold interest rates steady at its next meeting in two weeks. If it does, that would be the first time it has not hiked rates in more than a year.
A pause in rate hikes would offer some breathing room for an economy that has already seen manufacturing contract sharply for months.
Higher rates have also hurt many smaller and mid-sized banks, in part because customers have pulled deposits in search of higher interest at money-market funds.
Several high-profile bank failures since March have shaken the market, leading Wall Street to hunt for other possible weak links.
Several under the heaviest scrutiny rallied following the jobs report. PacWest Bancorp leaped 14.1 per cent , for example, to trim its loss for the year to 66.6 per cent .
But Fed officials have also warned recently that a pause in rate hikes in June would not necessarily mean the end to hikes.
Traders are increasingly expecting the Fed to follow up a June pause with a July hike to interest rates, according to data from CME Group. That helped push Treasury yields higher.
The yield on the 10-year Treasury climbed to 3.69 per cent from 3.60 per cent late Thursday. It helps set rates for mortgages and other important loans.
The two-year Treasury yield, which moves more on expectations for Fed action, jumped to 4.50 per cent from 4.34 per cent .
The move was widely expected by investors, and the deal moves next to President Joe Biden for his signature.
Lululemon Athletica jumped 11.3 per cent after it reported stronger profit for the latest quarter than expected, crediting accelerating sales trends in China and other factors. It also raised its forecast for results over the full year.
MongoDB soared 28 per cent after the database company reported bigger profit than expected. It said it is confident it will benefit from the wave of enthusiasm around artificial intelligence that has swept the business world.
A frenzy around AI has helped the S&P 500 climb to its highest levels since August. Nvidia, whose chips are helping to power the move into AI, has soared 169 per cent this year, for example.
Outsized gains for Nvidia and a small group of other stocks have been the main reason the S&P 500 has gotten so close to escaping its bear market, which saw a drop of 25.4 per cent in nine months from early January 2022 into October.
Just a couple handfuls of stocks have driven the bulk of the gains for the S&P 500, and critics say that means it may not be as strong as appears.
Even though the S&P 500 is up 11.5 per cent for the year so far, nearly half the stocks in the index have lost ground amid worries about falling profits, still-high inflation and much higher interest rates.
All told, the S&P 500 rose 61.35 Friday to 4,282.37. The Dow climbed 701.19 to 33,762.76, and the Nasdaq gained 139.78 to 13,240.77.
Press Association – Stan Choe, Associated Press