Nearly 500-point gain for Dow stock market following unexpectedly light jobs report, leading to speculations of an earlier interest rate reduction.
The Dow Jones Industrial Average saw an increase of 488 points, equating to 1.2%. The S&P 500 experienced a 1.1% rise, while the tech-centric Nasdaq showed a gain of 1.8%.
As per data from the Bureau of Labor Statistics, the economy added 175,000 new jobs in April. This fell significantly short of the anticipated 235,000 jobs, as well as the 315,000 newly created roles in March. Additionally, the unemployment rate inched up from 3.8% to 3.9%.
Despite this negative news for the general public, financial markets responded favorably. The Federal Reserve is keeping interest rates high in an attempt to curb inflation. A stronger job market allows the central bank to maintain higher rates without putting the economy at risk of a recession. A weaker labor market could potentially lead to a rate reduction.
Matt Peron, global head of solutions at Janus Henderson Investors, commented on these developments in a note on Friday: "Friday's employment news brought a huge sigh of relief to markets, with a more moderate job market and particularly a more moderate average weekly earnings reading. Taken together, this offers some hope that inflation is not as stubborn as feared and may allow us to rejoin the disinflation trend we saw last year."
Investors have adjusted their forecasts and now believe that there is a 75% likelihood of at least one rate cut following the Federal Reserve's September meeting, representing a significant increase from the previously estimated 62% chance.
Concurrently, treasury yields dropped as a result. The 10-year yield decreased below 4.5%. Yields and prices of Treasuries have a direct inverse relationship.
During a press conference held after the Fed's decision to maintain interest rates on Wednesday, Chair Jerome Powell acknowledged the possibility of action if there were substantial job losses.
"We're also prepared to respond to a sudden drop in employment," he stated.
In Apple-related news, the company's shares opened 7.5% higher following the release of their first-quarter earnings for 2024 and their forecast for exceeding sales estimates for the year.
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In light of the unexpectedly low job growth, some investors are now anticipating an earlier reduction in interest rates, viewing it as an opportunity for beneficial investments in the business sector. The potential reduction in interest rates could stimulate business growth, making borrowing cost-effective and encouraging expansion.
Source: edition.cnn.com
