The stock market rallied on Friday amid hopes that inflation may continue to cool and the Federal Reserve may ease its interest rate hikes after some mixed readings on the US economy.
The S&P 500 was 2.2% higher in afternoon trading and on track to end its first winning week in the last five. Gains were broad, with about 95% of stocks in the benchmark index marching higher.
Markets around the world got an initial jolt from the US work report.
Hey The chief economist of the Parthenon, Gregory Daco, spoke luck it’s a “Goldilocks jobs report” pointing to a “slowly easing” labor market.
Wage gains among workers are slowing, which could mean easing pressure on the country’s high inflation.
“Today’s payroll report is nirvana for bulls,” David Russell, VP Market Intelligence at TradeStation Group, said. luck. “Wage growth has slowed even as unemployment has fallen. The participation rate has risen while long-term unemployment has fallen. These numbers seem to point to a soft landing, with pressures of the inflationary caused by covid which is still decreasing.
Unfortunately, the jobs report also indicated that hiring across the labor market may still be too strong for the Fed’s liking, even after last year’s rate hike.
Analysts warned that trading could remain choppy in the coming hours and weeks as investors continue to test whether the economy can avoid a recession. Much of the trading is based entirely on expectations for what the Fed will do with rates: High rates slow the economy by design, hoping to cut inflation, while also threatening to trigger a recession. and drag prices for all types of investments.
Perhaps the most obvious action for investors was in the bond market, where the yield on the two-year Treasury fell to 4.27% from 4.48% before the release of data on the US labor market.
That yield is likely to track expectations for Fed action, and many investors are betting the central bank will dial back the size of its next rate hike after Friday’s data.
The key for them was a reading showing that workers’ wages across the country rose 4.6% in December from last year. It was the smallest increase in the workforce since two summers ago, and it came despite economists’ expectations of an acceleration.
While weaker increases hurt workers, especially if they haven’t kept up with inflation, economists say they could prevent the economy from a vicious cycle in which big wage gains push up wages. -his to raise the prices of their own products, which leads to higher inflation. . This is something the Federal Reserve has talked about in terms of restraint, part of the reason why it raises interest rates when the economy shakes.
“Until wage gains reach a sustainable high, the Fed may continue to throttle back its rate hikes,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
A separate report also showed that activity in US service industries contracted surprisingly last month, the first time that has happened since 2020. Analysts said that was likely due in part to rate increases that already pushed by the Fed, and the weakness can also reduce the inflation pressure in the country.
That report helped steady the stock market after a shaky morning and sent it higher. After opening the day with an initial pop of 1.2%, the S&P 500 lost almost all of it within minutes as Wall Street struggled with how to interpret the US jobs report and what it meant for of the Fed and rates.
The Fed pulled its key overnight rate down to a range of 4.25% to 4.50% after starting last year at nearly zero.
With inflation showing some signs of cooling in recent months, the Fed last month lowered the size of its rate hike to 0.50 percentage points from four in a row. which is an increase of 0.75 points. Traders are mostly betting the Fed will move to a more traditional hike of 0.25 points at its meeting next month.
Past price increases have already meant significant pain for areas of the economy that do best when prices are low, such as housing.
In the coming weeks, companies across the industry will show how widespread the damage is when they report how much they earned in the last three months of 2022.
If companies across the S&P 500 report a decline in total earnings per share, as analysts suspect, it will be the first decline since the summer of 2020.
On Friday, retailer Costco Wholesale jumped 7.1% for one of the biggest gains in the S&P 500 after it reported stronger December sales.
AP Business Writer Yuri Kageyama contributed.
Our new weekly Impact Report newsletter explores how ESG news and trends are shaping the roles and responsibilities of today’s executives. Subscribe here.