Stocks rise after mixed jobs report
Friday’s drop marks the end of a three-day winning streak for stocks. But all three indices ended the week strongly in the green, with the Dow’s best week performing since late June. The Dow is now just 2% off its all-time high in August.
Investors seem to realize that jobs data will be choppy for the foreseeable future. Although September’s gains were disappointing, revised government figures for July and August show that more jobs were added than previously reported.
As long as Covid-19 continues to disrupt the labor market, the numbers for the next few months will remain difficult to predict.
“This is not so much an economic shutdown as it is a reflection of the delta variable,” said Scott Clemons, chief investment analyst at BBH. “Some people see the pandemic largely over but that’s not true.”
Experts also said the jobs report is unlikely to change the Fed’s potential plans to announce that it will start trimming or scaling back its monthly bond purchases starting at its next meeting in November.
The Fed’s bond purchases helped keep long-term interest rates low in an effort to stimulate the economy during the worst of the Covid-19 slowdown.
Coming soon, no price hikes in sight yet
Strategists believe that the Fed may have made its decision on tapering soon. But the question is whether investors are ready to see the central bank start ditching the stimulus.
“It’s time for the Fed to get the training wheels out of the economy. The economy is ready. But I’m not sure if the stock market is ready,” said George Cipollone, portfolio manager at Penn Mutual Asset Management.
The fact that job gains are slowing will likely lead the Fed to take a gradual approach to tapering. It also means that the Fed is unlikely to raise long-term interest rates, which have been close to zero since March 2020, yet. Investors clearly love that news.
“The market takeaway from the numbers is that the Fed is not going to move too quickly with rate hikes,” said Mark Luchini, chief investment analyst at Janney. “The headline figure was disappointing and will keep the Fed on guard.”
Along those lines, investors are currently betting that the Fed will wait until late 2022 to raise interest rates and raise them again only in 2023.
This is the last jobs report before the next Federal Reserve meeting, which is a two-day session that ends on November 3. The October job numbers will be released on November 5.
Investors will also be watching this report to see if wages will continue to rise. The market often fears that higher wages will lead to more inflation, but investors now seem to be taking a different – and more positive – approach to workers’ wages.
If people have more money in their pocket, it could lead to a stronger shopping season in the last quarter… which will be good for retail sales and corporate profits.
“Consumers have high savings. Wages are rising. This is a very good story for consumer spending as the holidays approach,” said Kathy Jones, Schwab’s senior fixed income strategist.