Wall Street capped a choppy week of trading Friday with the best day for the stock market in over two months, as traders welcomed cooler-than-expected U.S. employment data as a sign that inflationary pressures on the economy are easing.
The S&P 500 rose 1.3%, its best day since late February. The benchmark index also erased its losses for the week.
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The Dow Jones Industrial Average rose 1.2%. The Nasdaq composite ended 2% higher, reflecting strong gains by technology sector stocks, which accounted for much of the rally.
The nation’s employers added 175,000 jobs last month, down sharply from the blockbuster increase of 315,000 in March, according to the Labor Department. The latest hiring tally came in well below the 233,000 gain that economists had predicted. Meanwhile, average hourly earnings, a key driver of inflation, rose less than expected.
The modest increase in hiring last month suggests the Federal Reserve’s aggressive streak of rate hikes may be finally starting to take a bigger toll on the world’s largest economy. That may help reassure the Fed that inflation will ease further, which could move the central bank closer to lowering interest rates.
“The demand for labor is slowing, which will eventually ease inflation pressures, giving the Fed some leeway to cut rates later this year,” said Jeffrey Roach, chief economist for LPL Financial. “Slower payroll growth and fewer hours worked imply the economy is slowing at a measured pace. This jobs report is consistent with the soft landing narrative.”
Treasury yields in the bond market mostly fell following the jobs report. The yield on the 10-year Treasury, which lenders use as a guide for pricing home loans, eased to 4.5% from 4.59% late Thursday. The two-year yield, which moves more closely with expectations for the Fed, fell to 4.81% from 4.88%.
The U.S. economy is in a tight spot, where the hope is that it remains strong enough to stay out of a recession but not so strong that it worsens the already stalled progress on inflation. That is essentially the “soft landing” the Fed is hoping to achieve as it tries to cool the rate of inflation to its target of 2%. Inflation at the consumer level stood at 3.5% in March, far below the peak of 9.1% nearly two years ago.
Stubbornly high readings on inflation this year pushed Federal Reserve Chair Jerome Powell to say on Wednesday that it will likely take “longer than previously expected” to get enough confidence about inflation cooling enough to warrant cutting interest rates.
“Some of this data coming out of the employment report dampens that narrative a little bit,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. "They want to cut interest rates, but they need more confidence in the inflation data and today's wage data is a little bit more confidence for them.”
The Fed’s main interest rate has been sitting at its highest level since 2001, and cuts would release some pressure on the economy and financial markets.
The benchmark S&P 500 fell 4.2% in April, its first monthly loss since October, as signals of stubbornly high inflation forced traders to ratchet back expectations for when the Fed could begin easing interest rates.
After coming into the year forecasting six or more cuts to rates in 2024, traders are now largely betting on just one or two, if any, according to data from CME Group.
Friday's market rally was widespread, though technology stocks powered much of the gains. Apple jumped 6% after announcing a mammoth $110 billion stock buyback. The tech giant reported late Thursday its steepest quarterly decline in iPhone sales since the outset of the pandemic.
Microsoft rose 2.2% and Nvidia added 3.5%.
Several companies notched gains after reporting strong quarterly results.
Amgen climbed 11.8% after the biotechnology company gave investors an encouraging update on a potential obesity drug. Live Nation Entertainment added 7.2% after the ticket seller and concert promoter beat analysts’ first-quarter revenue forecasts.
Motorola Solutions closed 5.2% higher after the communications equipment maker raised its profit forecast for the year.
Booking Holdings rose 3% after reporting better-than-expected first-quarter bookings and revenue. Another online travel company, Expedia Group, didn't fare as well, despite its latest quarterly results beating Wall Street targets. Its shares slumped 15.3% for the biggest decline among S&P 500 stocks after it lowered its full-year bookings guidance because its Vrbo rental unit has been slow to recover from its migration to Expedia’s platform.
All told, the S&P 500 rose 63.59 points to 5,127.79, while the Dow gained 450.02 points to 38,675.68. The Nasdaq gained 315.37 points to close at 16,156.33.
In Europe, Germany’s DAX gained 0.6%, while the CAC 40 in Paris rose 0.5% and London’s FTSE 100 added 0.5%.
Markets in Tokyo and mainland China were closed for holidays. The Japanese yen strengthened slightly against the dollar.