Strong on Wall Street after interest rate meeting and jobs report

October ended in the red and was the worst in several years. November started off strong, with stock markets rising over the past three days.

The optimism began Wednesday evening after the Federal Reserve decided to leave interest rates unchanged, and the interest rate party continued on Thursday. On Friday, weak jobs numbers sent stock markets higher, simply because this is a sign that pressure in the labor market and economy is easing, reducing the chance of further interest rate hikes.

This is how it ended for the three major indexes on Wall Street on Friday:

• The Nasdaq index rose 1.38 percent
• The broad-based Standard & Poor’s index rose 0.94 percent
• The Dow Jones Industrial Average rose 0.66 percent

Expectations of lower interest rates

Long-term interest rates are falling, and the market expects that interest rate cuts will come closer in time than before. It puts Wall Street in the green.

On Friday, the stage was set for the most important numbers of the month, also known as the Non-Farm Payrolls.

The summary shows that 150,000 new jobs were created in October, at the same time that September numbers were revised downward. In September, this figure beat expectations when 336,000 new jobs were created, while the market consensus was 170,000 new jobs. In today’s report, the number was revised to 297,000.

Analysts had previously expected 180,000 new jobs outside agriculture to be created in October, and the unemployment rate to remain steady at 3.8 percent, according to analyst estimates obtained by Bloomberg.

The result shows the weakest growth since January 2021.

-A clear reaction

Chief Economist Knott A. Magnussen at DNB Markets said the numbers were more in line with expectations, and not only that, but he indicates that only 99 thousand new jobs were created in the private sector.

– The trend towards lower employment growth, which we have seen over time, appears to have been confirmed. In addition, there was a slight rise in unemployment and lower wage growth. Magnussen says this indicates the Fed will no longer raise interest rates.

The release of these numbers is closely followed by global financial markets and is considered an important measure of the temperature of the American economy. Immediately after these numbers, the yield on the 10-year note drops significantly to 4.51 percent, and the yield on the 2-year note falls by ten basis points.

– There is a clear reaction, in line with the line we saw regarding the Fed’s interest rate meeting on Wednesday. Magnussen adds that this indicates that the market is becoming more convinced that there will be no further increases.

The unemployment rate ended at 3.9 percent in October.

Interest rate cuts are being brought closer in time

Economist fellow Marius Gunsholt Hof of Handelsbanken Capital Markets says today’s numbers are a new indication that the Fed is done raising interest rates, and refers to the report as a “full bowl” as the numbers have been revised downward, and unemployment is higher than expected and monthly. Wage growth ended up weaker than expected.

– The time of the first interest rate cut will be brought closer in time. Hof adds that the interest rate market is now pricing in the first interest rate cut in June next year, compared to the previous July.

Nordea Bank’s chief strategist, Eric Bros, says the weak report indicates the labor market is becoming less tight. However, he believes the numbers are not so weak that they point in the direction of recession.

– I bet the stock market is taking this favorably. The numbers show that the labor market rebalancing that Fed Chair Powell talks about all the time has gone further. There is a slightly lower likelihood of another rate hike from the Fed after that. The market is now placing a near-zero probability of a rate hike by the Fed.

The need for a higher interest rate is weak

The US labor market has long defied the aggressive interest rate hikes initiated by the Federal Reserve over the past year or so, and non-farm payrolls reports have been steadily beating expectations.

Investors were initially hoping for lower labor market numbers, as this indicated a slowing economy. This, in turn, will give the Fed another incentive to ease tight monetary policy, the Wall Street Journal writes.