BEIJING – Stocks rush higher on Friday after a strong U.S. labor market report suggested a recession may not be as close as Wall Street had feared.
The S&P 500 was up 1.6% at the end of the session, the latest push in a rally that propelled it nearly 20% above a low reached in October. This puts Wall Street’s leading measure of health on the cusp of entering what’s being called a “bull market” despite a long list of challenges.
The Dow Jones Industrial Average rose 715 points, or 2.2%, to 33.76 as of 3:10 p.m. EST, while the Nasdaq composite rose 1.1%.
They received a boost after a report showed employers unexpectedly ramped up their hiring last month. It’s the latest signal that the labor market remains remarkably strong despite much higher interest rates, and it provides a solid pillar of support for an economy that has begun to slow.
The stock market sectors that do best when the economy is healthy have led the way, including energy producers, banks and industrial companies. ConocoPhillips rose 3.3% as crude oil prices climbed on hopes that a resilient economy would require more fuel.
Perhaps more importantly for markets, the Labor Department’s monthly jobs report also showed worker wage increases slowed even as hiring strengthened.
While that may discourage workers trying to track prices on the ledger, investors believe slower wage gains should mean less upward pressure on inflation across the economy.
This in turn could allow the Federal Reserve to facilitate its interest rate hikes intended to reduce inflation. High rates do this by slowing the economy and hurting investment prices, and they have already done damage to the banking and manufacturing sectors.
The jobless rate also rose more than expected last month, rising to 3.7% from a five-decade low. That implies a little more slack in the labor market and appears to conflict with gangbuster hiring figures, the data for which comes from a separate survey.
“The reality is probably somewhere in between,” said Brian Jacobsen, chief economist at Annex Wealth Management.
“One striking thing is that if you compare the payroll today to the pre-COVID trend, we still have over four million jobs to fill,” he said. “COVID has led to strange times, a strange recovery and an even stranger downturn.”
Following the report, traders largely expected the Fed to keep interest rates steady at its next meeting in two weeks. If so, it would be the first time it hasn’t raised rates in over a year.
A pause in rate hikes would offer respite to an economy that has already been experiencing a sharp contraction in manufacturing for months. Rising rates also hurt many small and medium-sized banks, in part because their customers withdrew deposits in search of higher interest in money market funds.
Several high-profile bank failures since March have rattled the market, leading Wall Street to search for other possible weak links. Several of those receiving the most attention rallied in the aftermath of the jobs report. PacWest Bancorp jumped 14.4%, for example, to cut its loss for the year to 66.5%.
But Fed officials also warned recently that a pause in rate hikes in June would not necessarily mean an end to hikes.
Traders increasingly expect the Fed to continue a pause in June with an interest rate hike in July, according to data from the CME Group. This helped drive up Treasury yields.
The 10-year Treasury yield climbed to 3.69% from 3.60% Thursday night. It helps set the rates for mortgages and other large loans.
The two-year Treasury yield, which moves more in line with expectations of Fed action, jumped to 4.51% from 4.34%.
The Senate also helped bolster Wall Street by giving final approval on Thursday night to a deal that will help the US government avoid a potentially disastrous default on its debt. The move was widely expected by investors, and the deal then moves on to President Joe Biden for his signature.
Lululemon Athletica jumped 12.4% after posting a better-than-expected profit for the last quarter, crediting accelerating sales trends in China. It also raised its full-year earnings forecast.
MongoDB soared 27.8% after the database company also reported stronger-than-expected earnings. He said he was confident he would benefit from the wave of enthusiasm around artificial intelligence that swept through the business world.
A frenzy around AI helped the S&P 500 recently climb to its highest levels since August. Nvidia, whose chips are helping to propel the move to AI, for example, has soared more than 168% this year.
It has raised concerns among critics about a possible bubble, but proponents are calling AI the next revolution to remake the world. The furor around AI has helped a small group of stocks make outsized gains, and it’s the main reason the S&P 500 is so close to ending its bear market, which began on January 3. 2022.
Only a handful of stocks generated the bulk of the S&P 500’s gains, and critics say that means the stock market isn’t as strong as it looks. Even though the S&P 500 is up nearly 12% for the year so far, the majority of stocks in the index have lost ground on worries about declining earnings, still-high inflation and much higher interest rates.
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AP Business Writers Matt Ott and Joe McDonald contributed.
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