U.S. stocks surged Friday after a weaker-than-expected jobs report and falling oil prices led traders to sharply scale back bets on another Federal Reserve interest rate hike. The rally wasn’t enough to pull the Dow Jones Industrial Average and S&P 500 out of weekly losses, as another spike in global bond yields kept trading choppy.
The Dow fell 1.26 percent for the week, closing at 51,176 on Friday. The S&P 500 ended at 7,722, down 0.27 percent. The Nasdaq Composite gained 0.45 percent for the week, while the small-cap Russell 2000, among the stocks most sensitive to interest rates, slipped 0.16 percent.
The CBOE Volatility Index rose 2.96 percent for the week to 15.31, suggesting investors expect choppy markets ahead.
Jobs Report Shifts Rate Expectations
The U.S. economy added 29,000 jobs in September, according to Friday’s nonfarm payroll report from the Bureau of Labor Statistics. The number is down from a revised 133,000 in August and well below market expectations of 90,000.
“The September jobs report fell short of the hiring surge many expected, suggesting the labor market has yet to find consistent momentum heading into Q4,” Deborah Saneman, workforce expert and CEO of Wurk, told The Epoch Times.
She said companies usually increase hiring in September as they ramp up their businesses for the final months of the year. The weaker-than-expected job growth “suggests employers are still approaching hiring with caution amid broader economic uncertainty.”
As of 7:30 p.m. ET on Friday, traders cut the odds of a rate hike at the Federal Reserve’s next meeting to about 22 percent from 64 percent a week ago, according to the CME FedWatch Tool.
Oil also eased after the Group of Seven nations said they will release 100 million barrels of diesel and crude oil from their strategic reserves over the next four months, taking some pressure off inflation expectations among bond traders and helping ease yields.
Equities were steady throughout Friday, led by tech shares and small caps. The Nasdaq and Russell 2000 rose 1.19 percent and 0.87 percent, respectively, while the S&P 500 and Dow lagged with gains of 0.73 percent and 0.49 percent.
Global Bond Yields Spike Again
Treasury yields remained a primary concern for investors throughout the week. The yield on the benchmark 10-year note traded above 5.2 percent on Monday, touching its highest level since mid-2007. It climbed to 5.34 percent in early trading on Thursday, pulled back to 5.20 percent by early afternoon and settled around 5.24 percent. On Tuesday, the 30-year yield reached 5.6 percent, near levels last seen around the 2002 dot-com bubble burst.
Higher yields worldwide added pressure on U.S. Treasuries, as investors worried about relentless government spending and elevated inflation. French bonds led the latest spike amid soaring government deficits.
Mixed Economic Data
A series of economic reports offered conflicting signals. Consumer confidence weakened: the Conference Board’s index, released on Tuesday, fell to 81.9 (1985=100) in September from 88.6 in August.
“[Tuesday’s] disappointing headline figure should not come as a surprise. The Fed is raising rates, gas prices remain elevated, and inflation continues to outpace wage growth, squeezing consumers’ spending power,” eToro U.S. investment analyst Bret Kenwell told The Epoch Times.
Inflation, however, came in cooler than expected. The annual personal consumption expenditures (PCE) price index was 3.4 percent in August, in line with a downwardly revised July reading but well below expectations of 3.7 percent. Core PCE, which excludes food and energy, held steady at 3 percent, below expectations of 3.3 percent.
Kenwell said the lower-than-expected PCE readings, released on Wednesday by the Bureau of Economic Analysis, will likely be a relief for Wall Street, “particularly as investors hope to see the recent rise in Treasury yields cool and expectations for a Fed rate hike next month fade.”
Real gross domestic product (GDP), a measure of the nation’s output, rose at an annual rate of 2.2 percent in the second quarter, following an upwardly revised 2.5 percent growth in the first quarter, according to another report from the Bureau of Economic Analysis on Wednesday.
“GDP expectations had already been reduced earlier this quarter, so [Wednesday’s] upwardly revised reading is an improvement, though it largely brings growth back in line with where expectations started,” Kenwell said.
Private employers added 90,000 jobs in September, above expectations of 70,000 and up from a downwardly revised 36,000 in August, led by hiring in education, healthcare and leisure, according to a report from payroll processor ADP on Wednesday.
Week’s Trading
Stocks fell Monday on rising oil prices and bond yields, profit-taking in tech after the previous week’s rally, and another sell-off in Korean chip stocks, with the Kospi down 2.70 percent overnight. The Nasdaq fell 0.92 percent, the S&P 500 lost 0.77 percent, the Dow dropped 0.67 percent, and the Russell 2000 declined 0.69 percent.
Boeing, a Dow component, fell nearly 7 percent on news of a 737 software glitch. Intel fell 5.67 percent, and Micron Technology slid 2.61 percent, while Nvidia rose 1.68 percent on a massive buyback program.
All major averages ended lower Tuesday, led by small caps, with the Russell 2000 down 0.35 percent and the Dow off 0.26 percent. The S&P 500 and Nasdaq closed with fractional losses.
Stocks opened higher Wednesday, the last day of the month, but ended mixed. The Dow, S&P 500 and Russell 2000 lost 0.86 percent, 0.25 percent, and 0.13 percent, respectively, while the Nasdaq gained 0.24 percent.
Thursday, the first day of the fourth quarter, brought small gains across the major averages, with semiconductor stocks standing out after strong earnings from Micron Technology.
Outlook for Fourth Quarter
“The third quarter saw solid and respectable performance for stocks, even with the headwinds of high oil prices and rates, which were overshadowed by the incredible pace of earnings growth that is seen across the stock sector base,” Paul Stanley, managing director and founding advisor at New York City-based wealth management firm Arca Wealth, told The Epoch Times.
He said the earnings growth was driven in part by artificial intelligence (AI).
Stanley remains optimistic about equities for the fourth quarter, citing the buildout of AI and its infrastructure, which he said is still in its early stages.
