Stock Market Surges on Weaker Job Growth, Hopes for Rate Cuts

The US stock market rallied on Friday, with major indexes posting strong gains after a weaker-than-expected April jobs report. The Dow Jones Industrial Average jumped 481 points, the S&P 500 rose 1.3%, and the Nasdaq Composite surged 2%.

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Rizwan Shah
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Stock Market Surges on Weaker Job Growth, Hopes for Rate Cuts

Stock Market Surges on Weaker Job Growth, Hopes for Rate Cuts

The US stock market rallied on Friday, with major indexes posting strong gains after new data showed a slowdown in job growth, fueling hopes for interest rate cuts by the Federal Reserve. The Dow Jones Industrial Average jumped 481 points (1.3%), the S&P 500 rose 1.3%, and the tech-heavy Nasdaq Composite surged 2%.

The rally was sparked by the April jobs report, which showed employers added just 175,000 jobs last month, far below the 235,000 expected by economists. The unemployment rate also ticked up to 3.9% from 3.8% in March. While a weaker labor market may be concerning for workers, investors cheered the news as it could prompt the Fed to start lowering interest rates sooner than previously anticipated.

Why this matters: The Federal Reserve's interest rate decisions have a ripple effect on the entire economy, influencing borrowing costs, consumer spending, and business investment. As the central bank navigates the delicate balance between controlling inflation and avoiding a recession, its actions will have significant implications for the overall health of the US economy.

Matt Peron, global head of solutions at Janus Henderson Investors, said the jobs data"was a big sigh of relief for markets, with a softer job market and importantly a softer average hourly earnings readout... Taken together, this should give markets some hope that inflation is not as sticky as feared and raises the possibility of getting back on the disinflation trend we saw last year."

The Federal Reserve has been aggressively hiking interest rates over the past year to combat high inflation. While inflation has cooled from its peak, it remains well above the central bank's 2% target. The Fed wants to see the labor market soften to help bring inflation down further without tipping the economy into a recession.

Following the jobs report, traders are now pricing in a nearly 75% chance of at least one rate cut after the Fed's September meeting, according to the CME FedWatch tool. Treasury yields also fell sharply, with the 10-year yield dropping to 4.51%. Lower rates tend to boost stock prices by making borrowing cheaper for companies and increasing the relative attractiveness of equities.

Fed Chair Jerome Powell acknowledged the possibility of rate cuts if economic conditions deteriorate. At a press conference on Wednesday, Powell said, "We're also prepared to respond to an unexpected weakening in the labor market." The Fed has already paused its rate hike campaign, holding rates steady at its May meeting after 10 consecutive increases.

In addition to the optimism around interest rates, strong earnings from Apple also helped boost sentiment on Friday. The iPhone maker reported better-than-expected quarterly profits and revenue, sending its shares up 7%. Apple's results provided a bright spot in what has been a mixed earnings season so far.

The combination of a weaker jobs report and upbeat earnings news drove the stock market higher to close out the week. The S&P 500 and Nasdaq posted their best weekly gains since March, while the Dow had its second straight positive week. Investors will be closely watching upcoming economic data and Fed commentary for further clues on the future path of interest rates and the health of the US economy.

Key Takeaways

  • US stock market rallies on Friday, with Dow up 1.3%, S&P 500 up 1.3%, and Nasdaq up 2%.
  • April jobs report shows slower job growth, sparking hopes for interest rate cuts by the Federal Reserve.
  • Traders now price in 75% chance of rate cut after Fed's September meeting, citing softer labor market.
  • Fed Chair Jerome Powell acknowledges possibility of rate cuts if economic conditions deteriorate.
  • Strong Apple earnings also boost market sentiment, with shares up 7%.