Strong US Jobs Data Sparks Market Rally and Bond Yields Surge
The week ended on a high note as the US jobs data exceeded expectations, leading to a surge in the market and bond yields. Non-farm payroll rose by 353,000, well above the estimated 180,000. The unemployment rate came in at 3.7%, lower than the expected 3.8%. Additionally, average yearly earnings rose by 0.6% and 4.5% compared to the expected 0.3% and 4.1% respectively.
The jobs data revealed some interesting trends in different sectors. Private education and health services saw the highest gain with an increase of 112,000 jobs. Professional and business services also rose by 74,000 jobs. Both sectors offer relatively high-paying jobs. Manufacturing advanced by a solid 23,000 jobs, another sector known for its higher wages. However, the leisure and hospitality sector, which serves as a proxy for the service economy, experienced a relatively subdued growth of 11,000 jobs.
The release of stronger-than-expected jobs data had a significant impact on various markets. US bond yields moved higher, with the 2-year yield increasing by 17.8 basis points, the 5-year yield by 18.9 basis points, the 10-year yield by 16.1 basis points, and the 30-year yield by 12.0 basis points. These were substantial upward movements, although yields had been moving lower throughout the week.
Surprisingly, despite the surge in yields and the stronger US dollar, stocks moved sharply higher. This can be attributed to several factors. Firstly, investors believe that a strong economy will lead to higher earnings for companies. Secondly, even if the Federal Reserve decides not to lower rates, steady inflation and solid growth are positive indicators for stocks. Additionally, impressive earnings reports from companies like Meta and Amazon contributed to the market rally. Meta’s shares rose over 20% while Amazon’s shares were up nearly 8%. Nvidia, a company benefiting from increased cap-ex spending on AI chips, saw its shares rise by 4.97%.
For the trading week, the Dow Industrial Average rose by 1.43%, the S&P index by 1.38%, and the NASDAQ index by 1.12%. These gains turned a negative week into a positive one for the major indices, marking the fourth consecutive week of growth.
While the stock market thrived, other markets experienced different outcomes. Crude oil prices fell by 1.95% to $72.38 per barrel, despite concerns about the breakdown of the cease-fire in the Middle East and retaliatory bombings in Syria/Iraq by the US. Gold prices also moved lower by 0.73% to $2,039.54 as a result of higher rates and a stronger US dollar.
Looking ahead, there are several key events to watch. An interview with Fed Chair Powell will be broadcast on the Sunday evening news program 60 Minutes, providing insights into the FOMC rate decision. The Reserve Bank of Australia will announce its rate decision on Tuesday, with expectations for no change in policy. Additionally, various speeches from Federal Reserve officials and the release of employment statistics in New Zealand, China’s CPI, and Canada’s employment statistics will shape market dynamics throughout the week.
In terms of earnings, notable companies reporting next week include Caterpillar, McDonald’s, Palantir, Lilly, BP, Toyota, Ford, Chipotle, Fortinet, Alibaba, Uber, CVS Health, Paypal, Disney, Conoco Phillips, Pinterest, Expedia, and more.
As the week comes to a close, the strong US jobs data has set a positive tone for the markets. Investors are optimistic about the economy’s strength and its potential impact on corporate earnings. However, it remains to be seen how various geopolitical events and upcoming economic releases will shape market sentiment in the coming weeks.
