Wall Street saw a reversal of the moves of the past few days, with stocks rising and bond yields falling after a mixed jobs report did little to alter bets on the outlook for Federal Reserve policy.
(Bloomberg) — Wall Street saw a reversal of the moves of the past few days, with stocks rising and bond yields falling after a mixed jobs report did little to alter bets on the outlook for Federal Reserve policy.
There was something for every bull and bear in the labor-market figures, with payrolls growing at a softer-than-estimated pace and wages topping forecasts. With 47 days to go before the next Fed decision — and so many other economic reports in between — the swap market continued to bet the central bank is very close to wrapping up its hiking cycle.
While it wasn’t easy for stocks to find solid footing after the data, a more bullish sentiment took over on Friday, with the S&P 500 halting a three-day drop. Another reason that could explain the instability was the fact that two of the benchmark’s biggest companies were going opposite ways. Amazon.com Inc. jumped over 10% on a bullish revenue forecast, while Apple Inc.’s dipped below the historic $3 trillion mark after a disappointing outlook.
There was also some unwinding of this week’s moves in the bond market, which unsettled investors around the globe. Treasuries climbed across the curve on Friday, with 10-year yields dropping from the highest level since November. The dollar retreated against all of its developed-market peers.
Nonfarm payrolls increased 187,000 last month following a similar increase in June, a Bureau of Labor Statistics report showed Friday. The unemployment rate dropped to 3.5%. Average hourly earnings were up 0.4% from June and 4.4% from a year earlier, both stronger than forecast.
Two Federal Reserve officials — Raphael Bostic and Austan Goolsbee — said slower US employment gains suggest the labor market is coming into better balance, arguing the central bank may soon need to pivot to thinking about how long to hold interest rates at elevated levels.
Comments:
Seema Shah, chief global strategist of Principal Asset Management:
“Today’s jobs report will not clear up the Fed’s dilemma. This jobs report is definitely not a gamechanger. The Fed still has another report to come before their next meeting but, if no clear direction emerges, the Fed is likely to stay put. Powell seems to need a very compelling reason to hike again so, with the hurdle so high, it would likely take a meaningful upside surprise to both job gains and wage growth to prompt Fed action in September.”
Oscar Munoz, chief US macro strategist at TD Securities:
“While today’s report does not cleanly argue for a skip decision for the September FOMC meeting, we are of the view that most of the details should be judged as positive news by most Fed officials. We continue to expect the FOMC to pause in September, with July’s rate hike likely the last of the Fed’s tightening cycle.”
David Kelly, chief global market strategist at J.P. Morgan Asset Management:
“This morning’s report is unlikely to change the odds on any further Fed tightening – the July and August CPI reports will likely be much more important in determining whether the Fed feels the need to hike further. However, it still looks likely that 2024 will be a year of rate cuts – moderate rate cuts if the economy is able to avoid recession and more rapid cuts if today’s moderate moderation dissolves into outright recession.”
Tiffany Wilding, managing director and economist at Pacific Investment Management Co.:
“Overall this report doesn’t really change our thinking – the labor market is slowly decelerating, but we think a sharper slowdown is still ultimately necessary to keep inflation from reaccelerating next year. For the Fed, this report has to be a relief, but likely doesn’t tilt the scales one way or the other. Next week’s inflation report, which we expect will continue to show more moderate inflationary trends, may be more convincing, and push the Fed to be patient and watch how the economy evolves for another meeting.”
Seth Cohan, vice president an executive director of The Wealth Alliance:
“For investors, this ‘something for everyone’ report likely means that the trends in markets of late will continue. Inflation is still higher than the Federal Reserve believes it should be, yet data has been showing mostly a slowing to declining rate in the last few months demonstrating that we could have a shallow recession or a soft landing. Overall, the markets will likely be rangebound until we have a catalyst that helps to clarify economic conditions.”
Charlie Ripley, senior investment strategist for Allianz Investment Management:
“Overall, the jobs report does not change the outlook for the Fed as we are near the end of the hiking cycle, but rather provides additional evidence that the economy is moving in the direction they need to slow inflation, albeit slow.”
Bill Adams, chief economist at Comerica Bank:
“With the labor market very strong, wages rising solidly, and core inflation well above the Fed’s target, odds are better than 50-50 that the Fed makes another quarter percentage point rate hike in the second half of 2023, most likely at the Fed’s November 1 decision. That would have the Fed skipping a rate hike at the next decision in September, like they did in June, in recognition that interest rates are probably near the peak for this cycle.”
Ian Lyngen, strategist at BMO Capital Markets:
“There is nothing within this release that will necessitate the Fed moves in September.”
Krishna Guha, vice chairman of Evercore ISI:
“The Fed will get another employment report as well as two more inflation reports before the September meeting. We believe even if growth firms some further and labor market progress slows or stalls, provided that it does not reverse the Fed may still decide not to hike again, and rely instead on a faster than expected decline in inflation to raise real rates instead.”
Jeffrey Roach, chief economist for LPL Financial:
“A lot can change in three or four months, but as of now, the soft landing narrative is taking hold. At this point, the Fed will likely pause at the next meeting as the labor market is slowing and inflation is easing.”
Gus Faucher, chief economist at PNC:
“Today’s July jobs report is consistent with a soft landing in the US economy. Job growth is gradually slowing to a more sustainable pace. Given recent inflation numbers and softer job growth, the FOMC will likely keep the fed funds rate unchanged when it next meets in mid-September, in a range of 5.25% to 5.50%. But further fed funds rate hikes are possible later this year given incoming data on inflation and the labor market.”
Callie Cox, investment analyst at eToro:
“This jobs report is one to celebrate, but it may not be enough to ease the market’s concerns about the future. It’ll be interesting to see which narrative investors fixate on – slower hiring, or concerningly high wage growth. Either way, we think it’s worth staying cautious while still respecting the market’s momentum. Bull markets are tough to fight, but look for quality risk and brace yourself for a summer storm in what’s usually a bumpy time of year.”
Corporate Highlights:
- Nikola Corp. fell after saying it’s tapping a former General Motors Co. vice chairman to serve as its chief executive officer, replacing the current CEO after less than a year of running the electric truck maker.
- Tupperware Brands Corp. soared after the food-storage container company reached an agreement with its lenders to restructure its existing debt obligations, as it continues its turnaround efforts.
- DraftKings Inc. rose after the online sportsbook posted second-quarter sales that beat expectations and it raised its forecast for the year.
- Icahn Enterprises LP dropped after Carl Icahn slashed his company’s quarterly payouts in half and pledged to “stick to our knitting” in another substantive move acknowledging complaints raised by short-seller Hindenburg Research earlier this year.
- Atlassian Corp. rallied after delivering a forecast for the new year that quelled investor anxieties over a slowdown in internet technology spending.
- Block Inc. fell after its July gross profit growth trends disappointed investors, with the payments company seeing 21% year-over-year growth in the month.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.7% as of 12:21 p.m. New York time
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average rose 0.6%
- The MSCI World index rose 0.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.5%
- The euro rose 0.8% to $1.1033
- The British pound rose 0.5% to $1.2774
- The Japanese yen rose 0.5% to 141.88 per dollar
Cryptocurrencies
- Bitcoin fell 0.2% to $29,236.43
- Ether was little changed at $1,844.5
Bonds
- The yield on 10-year Treasuries declined 10 basis points to 4.08%
- Germany’s 10-year yield declined four basis points to 2.56%
- Britain’s 10-year yield declined nine basis points to 4.38%
Commodities
- West Texas Intermediate crude rose 1.4% to $82.69 a barrel
- Gold futures rose 0.4% to $1,976.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rob Verdonck, Richard Henderson, John Viljoen and Isabelle Lee.
More stories like this are available on bloomberg.com
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