Wall Street’s main indices on Friday all gained more than 2 percent after last month’s payrolls expanded more than expected, even as wage increases slowed and services activity contracted, easing worries about the US Federal Reserve’s interest rate hiking path.
US nonfarm payrolls rose by 223,000 jobs last month, US Department of Labor data showed, while a 0.3 percent rise in average earnings was smaller than expected and less than the previous month’s 0.4 percent.
In another set of data, US services activity declined for the first time in more than two-and-a-half years last month, as demand weakened, with more signs of inflation easing.
Photo: AFP
“We got good news on the inflation front with wage gains that are slowing. We got participation rates pick up again and yet we’re still creating jobs. It’s a kind of a win-win for the economy. And on the other side the ISM [Institute for Supply Management] services report was really weak and broadly weak,” said Megan Horneman, chief investment officer at Verdence Capital Management in Hunt Valley, Maryland.
“That’s basically making people think the Fed is nearing the end of what’s been one of the most aggressive tightening cycles we’ve seen in decades,” she added. “That’s why the markets are taking off.”
The Dow Jones Industrial Average rose 700.53 points, or 2.13 percent, to 33,630.61. The S&P 500 gained 86.98 points, or 2.28 percent, to close at 3,895.08, while the NASDAQ Composite Index added 264.05 points, or 2.56 percent, to close at 10,569.29.
Friday’s rally boosted the benchmark S&P and the NASDAQ enough to snap four weeks of declines. For the holiday-shortened week, the S&P rose 1.45 percent, while the NASDAQ added 0.98 percent and the Dow advanced by 1.46 percent.
John Augustine, chief investment officer at Huntington National Bank in Columbus, Ohio, said the gains were due to a calming of anxiety that the Fed would raise rates so much that it causes a recession.
“Today’s reports may alleviate that pressure to force a recession. They may already have slowed down the economy enough. They just need validation from inflation reports,” he said.
Still the Fed last month projected an a interest rate target peak of about 5 percent, and said it would keep rates high until inflation is where it wants it to be.
Fed officials on Friday acknowledged cooling wage growth and other signs of a gradually slowing economy, with US Federal Reserve Bank of Atlanta President Raphael Bostic hinting at the chance of a one-quarter percentage point hike at the next policy meeting.
However, Augustine said that the central bank needs to see further slowing of price increases in the inflation report for last month, due out on Thursday, before deciding whether to slow its next rate hike. It raised rates 50 basis points last month.
Also this week, several of the biggest US banks including JPMorgan and Bank of America are to start fourth-quarter earnings season on Friday.
“That’s the part of the puzzle people haven’t been able to figure out. How much should earnings estimates be cut for the calendar year or have they been cut enough?” Horneman said.
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