US equity indexes surged as slower-than-expected growth in monthly nonfarm payrolls and average hourly earnings led to a significant drop in the dollar and government bond yields. This shift reflected a growing perception that the Federal Reserve is nearing the end of its monetary tightening cycle.
The Nasdaq experienced a 1.4% jump, reaching 13,479.2 points, while the S&P 500 rose by 1.1% to 4,361.2 points, and the Dow Jones Industrial Average climbed 0.8% to 34,111.5 points. All sectors, except for energy, were in positive territory during intraday trading.
In October, nonfarm payrolls increased by 150,000, falling short of the consensus expectation of a 180,000 gain according to Bloomberg’s survey. Additionally, revisions lowered the gains for September and August by 39,000 and 62,000 jobs, respectively. The unemployment rate rose to 3.9%, compared to the market’s expectation for October based on September’s 3.8%.
TD Economics Senior Economist Thomas Feltmate noted, “Job growth slowed considerably, with the US economy adding the fewest jobs in four months and recording the second-weakest monthly gain since December 2020.” He attributed some of this slowdown to labor strikes in the auto, entertainment, and healthcare industries, as striking workers are not counted in payrolls.
Furthermore, average hourly earnings increased by 0.2% sequentially, missing the market’s estimate of 0.3%. On an annual basis, wages grew at a rate of 4.1%, the slowest since June 2021, according to Feltmate. Analysts had anticipated a 4% annualized gain.
Federal Reserve Chair Jerome Powell’s comments after the Federal Open Market Committee meeting showed no urgency to raise interest rates in December, and the payrolls data is unlikely to alter that stance, according to Jefferies economist Thomas Simons. Simons stated, “We remain steadfast in our opinion that the Fed is done with rate hikes.”
The probability that the FOMC will maintain its target rate within the 5.25% to 5.5% range stood at 95% on Friday afternoon, up from 80% the day before, as indicated by the CME Group’s FedWatch Tool.
US 10-year Treasury yields plummeted by 13 basis points to 4.54%, and the two-year rate declined by 13.8 basis points to 4.84%.
The US Dollar Index saw a 1.1% increase, reaching 105.
From the Fed’s perspective, the modest reduction in wage pressures and an uptick in the unemployment rate represent positive steps toward addressing the labor demand-supply imbalance and returning the jobless rate to a more sustainable level, according to analysts at Stifel. However, they emphasized that inflation remains too high, suggesting that there may still be further work needed on policy adjustments.
In other economic news, the Institute for Supply Management’s US services index declined to 51.8 in October from 53.6 in September, falling short of expectations for a reading of 53 in Bloomberg’s survey. The S&P Global US services index was revised to 50.6 in October from the earlier flash reading of 50.9, also below expectations for no revision.
West Texas Intermediate crude oil dropped by 1.4% to $81.32 per barrel.
In corporate developments, Expedia (EXPE) shares surged over 18% in recent Friday trading after reporting Q3 results that exceeded expectations and announcing a new $5 billion share repurchase program, making it the top performer in the S&P 500 with a 17% intraday gain.
Fortinet (FTNT) experienced a 17% intraday decline, making it the worst performer on both the S&P 500 and the Nasdaq. The company lowered its 2023 revenue outlook to $5.27 billion to $5.33 billion, down from the previous range of $5.35 billion to $5.45 billion. Analysts surveyed by Capital IQ had expected $5.4 billion.
Gold rose by 0.4% to $2,001.72, while silver jumped by 2% to $23.31.