US stocks rallied on Friday as investors assessed a jobs report that showed continued resilience in hiring but a slowdown in wage gains that could aid the Federal Reserve in its inflation battle.
The S&P 500 and the Nasdaq 100 rose more than 1.5% each, after vacillating briefly earlier in the session as traders attempted to make sense of the mixed jobs report.
Treasuries advanced — with the policy-sensitive two-year Treasury yield falling as much as 20 basis points — after data showed a US services gauge unexpectedly shrank at the end of 2022. A dollar index extended declines.
The December jobs report failed to offer a clear picture on the state of the American labor market, a day after two jobs readings signaled continued tightness. Hiring exceeded estimates for the month and unemployment fell to the lowest in decades. Traders are mulling how that strength contrasts with the weaker gains in hourly wages and what that means for Fed policy, with swaps markets pricing an increase of between 25 and 50 basis points at the next meeting.
“A new 53-year low in the unemployment rate is a real problem, suggesting the Fed made zero progress toward relieving labor market strain in 2022,” wrote Chris Low, chief economist at FHN Financial. “But the combination of the downward revision to November average hourly earnings and a lower-than-expected December rise buys the FOMC more time.”
Here’s what else Wall Street is saying about the jobs report:
Mike Bailey, director of research at FBB Capital Partners:
“It seems like good news is good news, for a change. Sometimes a hot jobs number is bad news, but investors are seeing the glass half full this morning. Lower wages are pouring cold water on Jay Powell’s plans for more tightening. I would broaden the conversation to add lower-than-expected inflation in Europe and a down market for stocks this week. Put these together with lower US wages and you get a narrative that stocks are cheap, inflation is fading, and investors need to get busy filling out their portfolios before it’s too late.”
Priya Misra, global head of interest rate strategy at TD Securities:
“The market is reacting to the weaker wages number but I think the report reflects that the labor market remains very tight. The terminal rate priced in before the number was 5.04% and that still looks low to us given our call of the Fed ending at 5.25-5.5 but today’s report should not move it higher. All eyes on ISM services later and CPI next week. The market will remain torn on whether the Fed will hike 25 or 50 in Feb (we think 50)”
Seema Shah, chief global strategist at Principal Asset Management:
“A lower unemployment rate and weaker average hourly earnings growth is certainly going to get equity market bulls’ attention. Indeed, expectations for a soft landing in the economy have likely been boosted in light of today’s jobs report. Yet, with the unemployment rate back to the historic low of 3.5%, how realistic is it to expect wage growth to move meaningfully lower? The Fed will likely be skeptical.”
Bryce Doty, senior portfolio manager at Sit Investment Associates:
“Fed Chair Powell should like what he sees in the jobs data given a moderating wage growth and uptick in worker participation rate. 223,000 thousand jobs were created last month which is a good sign for helping further reduce supply chain problems.”
Some of the main moves in markets:
- The S&P 500 rose 1.6% as of 11:02 a.m. New York time
- The Nasdaq 100 rose 1.6%
- The Dow Jones Industrial Average rose 1.6%
- The Stoxx Europe 600 rose 0.8%
- The Bloomberg Dollar Spot Index fell 0.7%
- The euro rose 0.8% to $1.0602
- The British pound rose 1.1% to $1.2043
- The Japanese yen rose 0.7% to 132.43 per dollar
- Bitcoin was little changed at $16,835
- Ether rose 1% to $1,264.63
- The yield on 10-year Treasuries declined 15 basis points to 3.57%
- Germany’s 10-year yield declined 12 basis points to 2.20%
- Britain’s 10-year yield declined eight basis points to 3.47%
- West Texas Intermediate crude rose 1.9% to $75.07 a barrel
- Gold futures rose 1.5% to $1,867.80 an ounce