jobsreport

U.S. stocks saw a surprising bounce on Friday, culminating in the S&P 500 index’s biggest intraday comeback since the March banking crisis, even though a monthly jobs report for September came in much higher than expected.

So, are investors no longer worried about the Federal Reserve’s inflation fight or higher interest rates wrecking the U.S. economy?

“Stocks initially sold off on the blockbuster jobs report which indicates the Fed may not be done,” said Gina Bolvin, president of Bolvin Wealth Management Group. “However, after digesting the strong labor market is still strong, stocks rallied. And why shouldn’t they? Will good news- finally – be good news?”

Bolvin said part of the rally could be seasonal, with September typically being a rough months for stocks. There also has been increased optimism that the earnings recession for American corporations may be over, she said.

Analysts are predicting corporate earnings growth rates of 5.9% for the fourth quarter for S&P500 companies, according to John Butters, senior earnings analyst at FactSet. Estimates are for the third-quarter of 2023 after the stock index’s fourth straight quarterly earnings decline on a year-over-year basis.

At Friday’s session lows, the S&P 500 index
SPX
was down 0.9%, but it ended up posting a 1.2% advance, its largest intraday comeback since March 24, 2023, according to Dow Jones Market Data. The Dow Jones Industrial Average
DJIA
booked a 0.9% gain and the Nasdaq Composite Index
COMP
rose 1.6% higher.

“The movement in stocks today is certainly encouraging given yields are up as well,” said Chris Fasciano, portfolio manager, Commonwealth Financial Network. “But we will need to see follow through next week.”

The yield on 10-year Treasury
BX:TMUBMUSD10Y
note rose for five straight weeks in a row to 4.783% on Friday, while the 30-year yield
BX:TMUBMUSD30Y
rose to 4.941%, according to Dow Jones Market Data.

Read: Why 5% bond yields could wreak havoc on the market

While the U.S. stock-market will be open for business on Monday, the bond market will be closed for Columbus Day and Indigenous Peoples Day holiday, giving investors somewhat of a pause before a big week of economic data that could shape the Fed’s next decision on interest rates.

“Ultimately, stocks and bonds will take their cues next week from the economic releases,” Fasciano told MarketWatch.

Key items on the calendar for the week will be September inflation reports, with the producer-price index on Wednesday and the consumer-price index due Thursday. In between, Fed minutes of its policy meeting in September also are due to be released Wednesday.

“That makes next week an important week for the future direction of both the bond and equity markets as the Fed will certainly be focused on those reports prior to their next meeting on Oct. 31-Nov. 1,” Fasciano said.

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The Federal Reserve can probably end its inflation fight now that labor market is cooling after it gained a historic 26 million jobs in roughly the past three years, according to BlackRock’s Rick Rieder.

“In fact, 26 million jobs is like adding an economy the size of Australia or Taiwan (including every man, woman, and child), said Rieder, BlackRock’s chief investment officer of global fixed income, in emailed commentary following Friday’s monthly jobs report for August.

The report showed the U.S. adding 187,000 new jobs, slightly more than forecasts, but also pointing to an uptick in the low unemployment rate to 3.8% from 3.5%.

“Remarkably, 22 million people were hired between May 2020 and April 2022, and 11 million were added to the workforce from June 2021 to May 2023, as the economy has opened up massive amounts of roles for fulfillment,” said Rieder.

He expects wage pressures to ease and thinks the “economy may now have fulfilled many of its needs,” which should make the Fed feel more confident in “the permanence of lower levels of inflation,” so that it can slow or stop its interest rate rises by year-end.

Hiring in the U.S. has slowed, except for in education and healthcare services, when looking at private payrolls based on a three-month moving average.

Payrolls are slowing in many sectors, expect education and healthcare

Bureau of Labor Statistics, BlackRock

The Fed has already raised interest rates to a 22-year high in July to a 5.25%-5.5% range, with traders in fed-funds futures on Friday pricing in only about a 7% chance of another Fed rate hike in September and favoring no hike again at the central bank’s November policy meeting.

Rieder at BlackRock, one of the world’s largest asset manager with $2.7 trillion in assets under management, thinks a Fed pause or end of rate hikes could calm markets, even if the Fed, as BlackRock expects, keeps rates high for a time.

U.S. stocks were choppy Friday ahead of the long holiday weekend for Labor Day, with the Dow Jones Industrial Average
DJIA
up 0.1%, the S&P 500 index
SPX
roughly flat and the Nasdaq Composite Index
COMP
was 0.2% lower, according to FactSet.

The 10-year Treasury yield
BX:TMUBMUSD10Y
was around 4.18%, after hitting its highest since 2007 in late August, adding to volatility that has wiped out earlier yearly gains in the roughly $25 trillion Treasury market.

See: This hadn’t happened on the U.S. Treasury market in 250 years. Now it has.

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U.S. stocks staged a surprising rally on Friday. But can the party last?

Fed rate hikes can end after U.S. job gains rival an economy ‘the size of Australia,’ says BlackRock

Payrolls are slowing in many sectors, expect education and healthcare