Stocks jumped sharply Friday after a softer-than-expected April jobs report boosted hopes that the Federal Reserve could start cutting interest rates soon.
The Dow Jones Industrial Average gained 420 points, or 1.1%. The S&P 500 surged 1.1% while the Nasdaq Composite rallied 1.9%.
Friday’s nonfarm payrolls report showed 175,000 jobs gained in April, below the 240,000 jobs expected by economists surveyed by Dow Jones. The unemployment rate edged up to 3.9%, versus 3.8% in the prior month, according to the Bureau of Labor Statistics. Wage figures also came in less than expected, an encouraging sign for inflation.
“It’s really eased investors’ fears that the economy may be overheating or reaccelerating, and it’s reviving hope for rate cuts,” said John Hancock Investment Management’s co-chief investment strategist Emily Roland. “That’s why rates are falling, bonds are rallying and equity markets are up. Bad news for the jobs market, means the Fed may be able to start cutting later this year.”
Following April’s weaker-than-expected job growth and moderating wage gains, traders are pricing in a second rate cut by the end of the year. The probability rose to about 72% Friday morning after falling to less than 50% the day before, according to the CME Group’s FedWatch tracker of futures market pricing.
Rates also dropped following the labor report, with the 10-year yield falling below 4.5%. During the Federal Reserve’s meeting on Wednesday, Chair Jerome Powell said the central bank was prepared to act if the unemployment rate ticked higher.
“We’re also prepared to respond to an unexpected weakening in the labor market,” Powell said.
With Friday’s moves, all the major averages are headed to finish the week with gains. The Dow and Nasdaq have added 1.1% and 1.4%, respectively, while the S&P is up 0.5%.
Strong quarterly reports from major Dow components contributed to Friday’s rally. Apple advanced 6.7% after it announced a $110 billion share repurchase and a top -and bottom-line beat. Biotech stock Amgen surged 12% after posting better-than-expected earnings and offering a positive update on an experimental obesity drug. Shares headed for their best day since 2009.
