(Bloomberg) -- Stocks headed toward all-time highs and bond yields fell after the US jobs report spurred bets on a December Federal Reserve rate cut.
Equities extended this week’s advance, with the S&P 500 set for its 57th closing record in 2024. This year’s surge is now approaching 30%, with the equity gauge on pace for its biggest annual return since 2019. Treasuries climbed, with the move led shorter maturities that are more sensitive to imminent Fed moves. Swap traders are pricing in about 20 basis points of easing at the Fed’s December meeting.
Nonfarm payrolls increased 227,000 last month following an upwardly revised 36,000 gain in October. Since the figures have been choppy lately, economists are keeping an eye on payrolls growth over the past three months, which averaged 173,000. The unemployment rate edged higher and wages rose by more than forecast.
To Bret Kenwell at eToro, traders needed a reassuring jobs report and that’s exactly what they got.
“Investors want to feel that the jobs market is on solid footing,” he said. “A dip in the unemployment rate would have been a nice touch, but nevertheless this should reassure investors that the labor market isn’t teetering on a cliff. The market still favors a rate cut from the Fed later this month and this report may not change that expectation.”
At Principal Asset Management, Seema Shah says a December cut is in the offing, but in early 2025, the Fed is likely to slow its cutting pace to every other meeting. With the Fed back in inflation-first mode after the summer labor-market scare, we still need to pass the inflation check before we can be confident December is close to a lock, warned Krishna Guha at Evercore.
In fact, separate data Friday showed US consumer sentiment rose to the highest since April, while year-ahead inflation expectations picked up to a five-month high.
The S&P 500 rose 0.4%. The Nasdaq 100 added 0.6%. The Dow Jones Industrial Average gained 0.1%.
Treasury 10-year yields declined declined three basis points to 4.14%. The Bloomberg Dollar Spot Index rose 0.2%
Wall Street’s Reaction to Jobs:
There’s a fine line between normalization and deterioration in the labor market, but the U.S. still appears to be following the normalization path.
The unemployment rate’s negative tilt may help make a firmer case for a 25 basis-point cut from the Fed this month. There is still another CPI print before the FOMC meets that could upend that thought process, especially if it reinforces some nascent sticky services inflation trends. Altogether, the real fed funds rate is still relatively tight, and maintaining that posture runs the risk of the labor market’s normalization trend turning to deterioration. Expect the Fed to continue on its gradual pace of easing into the new year as it tries to keep both sides of its dual mandate in balance.
Real wages continue to grow, giving consumers the ability to maintain spending habits despite elevated prices. The rise in the unemployment rate should give the Fed opportunity to cut in December but if they do, the Fed will likely pause in January unless inflation stats decelerate meaningfully.
These numbers continue the recent spate of resilient economic data and add fuel to the gradually strengthening case for a pause in interest rate increases. The economy has reached a point where it is growing healthily, with fairly full employment, and consistent wage growth – we are seeing very little evidence that there are issues needing to be addressed.
The economy continues to produce a healthy amount of job and income gains, but a further increase in the unemployment rate tempers some of the shine in the labor market and gives the Fed what it needs to cut rates in December.
Today’s report tells us we are clearly not entering into a recession. This is the last piece of data the Fed needs to make its decision later this month. This job report was a quality print and tells us the job market remains healthy and steady.
Data this morning was a Thanksgiving buffet with payrolls spot on, revisions positive, but unemployment ticking higher despite the participation rate falling. This print doesn’t kill the holiday spirit and the Fed remains on track to deliver a cut in December.
Nothing to see here. The labor market is in equilibrium, with the potential to support healthy consumer spending in 2025. The December rate cut doesn’t seem to be going anywhere and the positive outlook for risk appetite remains intact. Donald Trump is inheriting a Goldilocks scenario.
This jobs report came out right in the ‘Goldilocks’ zone, not too hot so as to derail interest rate cuts in December (or next year), but also not too cold which could have spooked financial markets about the underlying health of the US economy. The just right report should be a benefit to risk assets at the margin.
A mixed jobs report reduces the prospects of a Fed skip later this month. There is little to suggest that labor conditions are rapidly worsening, but also little to assuage some of the lingering concerns regarding the labor market. With things more or less steady, the Fed should be in position to continue to ease monetary policy over the next several months, and recent comments suggest the pace at which they will do so will be more gradual in 2025.
The argument for the Fed to act preemptively to prevent further economic deceleration strengthened today. While today’s data was largely as expected, the reality is that job growth has slowed from 207k per month in the first half of 2024 to 148k in the second half. Easing another 25 basis points appears to be the right call absent any ugly surprises in next week’s inflation figure.
Markets will react short term over small pieces of data, but we still feel the trends are stable enough for the underlying job market. There is a bifurcation of the consumer in the US, and the top quintiles have a greater share of income and wealth, and they are still spending which is buffeting this economy. Jobs creation may not be as robust as in the past years, but we are not seeing a disaster in the job market.
This big rebound from a distorted October read is actually quite balanced and should relieve some economic concerns, as well as keep the Dec. 18 rate cut expectations on track. Zooming out a bit from today, the trend of a slowly slowing labor market continues to encourage rate cuts while not overly threatening the late cycle economy.
It allows them (Fed officials) to ease this month, but next week’s CPI release could change that outcome. We think the Fed shifts to a more patient tone (think slow and steady) as there is no pressure for them to increase the scale of monetary easing going into 2025. The Fed’s terminal rate is going to be equally as important as the path of how they get to it.
We see a healthy, although weakening, job market.
Despite the strong headline number this morning, the Fed is likely to note the overall slowing in the job market and cut rates by 25 basis points in 2 weeks, unless the next CPI report is white hot (and our base case is that CPI won’t surprise in a material way and the Fed is going to cut).
Given the positive backdrop of strong economic growth, a healthy labor market, and inflation that is relatively contained, the Fed can keep cutting rates and that should allow the bull market to run into the end of the year and into early next year.
Friday’s stronger-than-expected jobs report helps to quell fears from a few months ago that the labor market was softening and that steep rate cuts were needed. The labor market is indeed strong and while the Federal Reserve will still likely cut interest rates in December, we take the Fed at its word in telegraphing a more patient stance on rates for 2025.
These data clear the path for the Federal Reserve to further reduce the policy rate in December —nothing in these jobs data supports a pause in normalization.
The labor market has stabilized and remains stronger than all of the naysayers have led people to believe. A stable labor market supports a strong consumer based economy, and that’s exactly what the data have shown all year long.
This report suggests a continuation of the current economic trend, with the Fed likely to proceed with its ongoing rate normalization, although its sequence of rate cutting is unlikely to become a genuine counter-cyclical action. The possibility of a Fed rate cut in December remains firmly on the table but should be considered with nuance, given that the Fed is now very close to pausing its normalization process, waiting to see what transpires in the next economic cycle.
Consequently, equities might find reassurance in the economic stabilization and the prospect of Fed cuts, while interest rates might appreciate this situation less, considering its implications for the future inflation cycle. This report also suggest that past the increased visibility in terms of Fed policy, a stabilization of the US currency could be seen next – let’s see.
A powerful rally in US stocks as well as cryptocurrencies has left the asset classes looking frothy, according to Bank of America Corp.’s Michael Hartnett.
The S&P 500’s price-to-book ratio has surged to 5.3 times in 2024, approaching a peak of 5.5 hit in March 2000 during the height of the technology bubble, according to data compiled by Bloomberg.
BofA’s Hartnett said there’s a high risk of “overshoot” in early 2025 if the S&P 500 nears 6,666 points — about 10% above current levels. The bank’s bull-and-bear indicator shows no sign yet of exuberance among global investors.
Buoyed by buyback announcements from the largest technology companies, Corporate America is expected to repurchase a record amount of stocks this year.
In the first 11 month of 2024, announced buybacks jumped 17% to $1.14 trillion from a year ago, in the second-highest total value to start a year ever, data compiled by Birinyi Associates show. At a current pace, announced share repurchases should eclipse the previous annual record of $1.2 trillion set in 2022 to mark a new record.
Corporate Highlights:
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Lululemon Athletica Inc. edged up its full-year outlook on strong sales overseas, a sign the upscale activewear brand is fending off upstart competitors and navigating slower growth in consumer spending.
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DocuSign Inc., a maker of electronic-signature software, boosted its revenue forecast for the full year. Analysts were positive about the early contract renewals.
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Petco Health and Wellness Co. reported third-quarter adjusted Ebitda that came ahead of estimates. Morgan Stanley said there were signs of stabilization in the business, while Citi highlighted the comparable sales beat.
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Smith & Wesson Brands Inc., a gun maker, reported second-quarter adjusted earnings per share that missed estimates.
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Ulta Beauty Inc., a cosmetics retailer, increased its annual projections for comparable sales and earnings per share following a stronger-than-anticipated third quarter. Raymond James said it was encouraged by the rebound in comparable sales.
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Victoria’s Secret & Co. raised its outlook after reporting third-quarter sales that topped Wall Street expectations, saying shoppers had an early positive response to its holiday merchandise.
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Aviva Plc reached a preliminary agreement to buy Direct Line Insurance Group Plc for £3.6 billion ($4.6 billion) in a deal that would create the UK’s largest motor insurer.
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.4% as of 10:01 a.m. New York time
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The Nasdaq 100 rose 0.6%
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The Dow Jones Industrial Average rose 0.1%
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The Stoxx Europe 600 rose 0.2%
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The MSCI World Index rose 0.2%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.2% to $1.0568
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The British pound was little changed at $1.2750
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The Japanese yen rose 0.2% to 149.82 per dollar
Cryptocurrencies
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Bitcoin rose 0.4% to $99,380.78
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Ether rose 3.2% to $3,983.39
Bonds
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The yield on 10-year Treasuries declined three basis points to 4.14%
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Germany’s 10-year yield declined one basis point to 2.10%
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Britain’s 10-year yield declined two basis points to 4.26%
Commodities
This story was produced with the assistance of Bloomberg Automation.
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