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On Friday, Wall Street’s primary stock indices staged a rally as bond yields sharply declined in response to signs of slowing U.S. jobs growth and a modest uptick in unemployment. This development raised hopes that the Federal Reserve might conclude its interest rate hiking campaign.
The U.S. Labor Department’s report revealed that nonfarm payrolls increased by 150,000 jobs in October, falling short of the expected 180,000 gain. This was partly due to strikes at Detroit’s Big Three automakers. Data from the prior month was also revised lower, indicating an increase of 297,000 jobs rather than the previously reported 336,000. Concurrently, the unemployment rate edged up to 3.9%.
Matt Palazzolo, senior investment strategist at Bernstein Private Wealth Management, commented on the situation, stating that “from a policy perspective, this gives confidence the Fed remains on hold for the foreseeable future and only really hikes again if growth or inflation accelerate from here.” He further noted that a gradual deceleration in labor market gains and economic activity over the next six to nine months should allow the Fed to maintain its current interest rate levels.
In terms of market performance, the S&P 500 added 40.38 points, equivalent to a 0.94% increase, closing at 4,358.16 points. Similarly, the Nasdaq Composite surged by 184.09 points, or 1.38%, reaching a level of 13,477.23. The Dow Jones Industrial Average recorded a rise of 220.20 points, representing a 0.65% gain, closing at 34,059.28.
The Russell 2000 index, focused on small-cap stocks, also experienced a rally, reaching its highest level since October 17. During the session, the CBOE volatility index touched a fresh six-week low, reflecting decreased investor anxiety.
The decline in bond yields, for the fourth consecutive session, had a notable impact during the trading session. The benchmark 10-year Treasury yield reached its lowest point in over five weeks. This drop in yields positively influenced stock performance.
Tony Welch, Chief Investment Officer of SignatureFD in Atlanta, Georgia, noted that “falling interest rates are probably the top catalyst this week” and emphasized that the jobs report reinforced this trend. He further suggested that the “interpretation that the Fed may be done with a tightening cycle” gained momentum in light of this data.
Solid earnings reports also played a significant role in supporting stock gains. Companies have managed to expand profit margins, and analysts are anticipating earnings growth of 5.7% for S&P 500 firms in the third quarter. Furthermore, over 81% of the 403 companies in the benchmark index that have reported profits so far have exceeded estimates, as per LSEG data.
It’s worth noting that Apple diverged from the positive trend, witnessing a decline after falling short of expectations with its sales forecast for the holiday quarter. Among other major moves, Block experienced an upswing after raising its annual adjusted profit forecast, while Fortinet faced a setback due to a less optimistic fourth-quarter revenue forecast.
In summary, the stock market’s rally, accompanied by declining bond yields and solid earnings reports, reflects optimism about the economic outlook and the Federal Reserve’s monetary policy direction.
