Soft US Jobs Report Sends Nasdaq to Record High
Stocks rose Friday following a surprisingly weak jobs report that raised hopes the Federal Reserve will hold rates steady in October.
The Dow Jones Industrial Average added 250 points, or 0.5%, to close at 51,176.46. The S&P 500 gained 0.7%, rising 56.27 to 7,722.72, while the Nasdaq Composite climbed 1.2%, adding 319.27 to 27,190.86, hitting an all-time high earlier in the day before pulling back as Treasury yields reversed course.
Despite Friday’s rally, the Dow was down for the week by about 1.3%. The S&P was little changed, off 0.3%, while the Nasdaq was up 0.6% on the week, with Friday marking its third straight advance.
Treasury yields initially fell Friday following the September employment report, but later rebounded, pushing U.S. equities off their highs for the session.
Tech stocks rallied as risk-taking returned on Wall Street, with shares of Nvidia hitting an all-time high for the first time since May, though it eventually closed below its previous record close. CrowdStrike, Palo Alto Networks and AMD also all rose to all-time highs. Shares of AMD also rose nearly 3%.
Last month’s nonfarm payrolls report showed the U.S. economy added 29,000 jobs last month, with unemployment rising to 4.2%. The Dow Jones consensus called for jobs growth of 84,000 and for the unemployment rate to hold steady at 4.1%.
“This is the exact kind of number the market wanted from a labor standpoint,” said Phil Blancato, chief market strategist at Osaic. “Not too hot, not too cold ... not overly great, and not weakening.”
That number made traders reassess the next move for the Federal Reserve. Fed funds futures trading suggests a 77% likelihood the central bank will stand pat at this month’s meeting, according to the CME FedWatch Tool.
Saira Malik, chief investment officer at Nuveen, told CNBC’s “Squawk Box” that the report may give the market support before earnings season kicks off, which she thinks will be “very strong.”
“So, I think this could be the start of the Santa Claus rally that we’ve all been hoping for,” she said.
Oil prices pulled back, supporting equities, following a report that European nation states are considering a release of strategic fuel reserves following pressure from the Trump administration.
Investors are coming off a modestly higher session Thursday, to start off the month of October. However, the Dow and the S&P 500 were headed for weekly losses amid a global bond rout, while the Nasdaq was the only major average on pace to end the week with gains.
Alright, it's Friday and the big story of the day was US nonfarm payrolls rose by just 29,000 in September, well below the 84,000 forecast:
The U.S. economy created far fewer jobs than expected in September, pointing to a surprising soft spot in the labor market and broader economy.
Nonfarm payrolls rose a seasonally adjusted 29,000 for the month while the unemployment rate increased to 4.2%, the Bureau of Labor Statistics reported Friday. Economists surveyed by Dow Jones had been looking for job growth of 84,000 and an unemployment rate of 4.1%.
In addition to the weakness in September, the August jobs count was revised lower to reflect a gain of 133,000 while July switched from a gain to a loss as payrolls fell by 10,000. The revisions in total showed 60,000 fewer jobs than previously reported.
Market reaction was swift to the report, with traders interpreting the soft jobs numbers as good news as they likely further cemented the Federal Reserve staying put at its October meeting.
The other related story is how September's jobs report extended a trend that illustrates consumers' widespread pain: Their pay is not keeping pace with inflation.
Average hourly earnings rose an anemic 0.1% month over month and are up 3% year over year, new Labor Department data shows. That's against a backdrop of inflation data, which showed, most recently, prices growing at a 3.4% rate as of August.
So real wages are contracting, which never bodes well for the economy.
As far as markets, the US 10-year Treasury yield initially dropped to 5.16% on the news and then bounced back to close at 5.28%.
Traders are not pricing in a Fed rate hike in October (no way the Fed is moving right before midterms), but December remains open for a rate hike.
It's clear that rate increases are starting to bite cyclical sectors like housing, but the wildcard remains inflation. We need to see the effects of oil prices and economy over the next couple of months to see if reports come in cooler than expected.
If so, yields will tumble further but there remains one big caveat: US debt keeps exploding.
Worse still, President Trump just soft-launched higher inflation as the new solution for rebalancing the $40 trillion US national debt.
I'm sure the bond vigilantes will love that idea!
In all seriousness, I think we are closer to an interim end when it comes to rising bond yields as inflation expectations peak, so I'd be careful here extrapolating recent action in the bond market well into the future.
Maybe that's why stocks once again shrugged off rising yields this week, And once again, Big Tech led the rest of the sectors:
But while everyone is focused on Nvidia, there were other stocks that experienced big gains this week, including Kodiak Sciences (KOD), Iovance Biotherapeutics (IOVA) and Immunitybio Inc (IBRX):
Iovance was my top biotech holding (took profits this week). I know the company extremely well and think it has a very bright future.
Alright, not much more to add this week, time to relax and enjoy my little guy.
Below, Jan Hatzius, chief economist at Goldman Sachs, joins 'Squawk on the Street' to discuss September jobs report, future activity of The Fed, and more.
And the CNBC Investment Committee reveals their portfolio strategy as yields continue to rise.
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