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U.S. stock and bond prices rose on Friday after a sharp drop in hiring raised investor expectations that interest rates have peaked.
U.S. employers added 150,000 jobs last month, fewer than forecast and barely half the September revised figure of 297,000. Economists surveyed by Bloomberg had expected a total of 180,000 new jobs in October.
The numbers provided further boost for U.S. Treasury bonds as investors bet that the slowing labor market makes it more likely that the Federal Reserve will not raise interest rates further in the coming months.
The bond market had gained strength earlier this week after Fed Chairman Jay Powell said the central bank would “take a cautious approach” to future interest rate hikes. Some investors took these comments as a sign that higher borrowing costs have already sufficiently slowed the US economy.
JPMorgan’s Michael Feroli said Friday’s jobs report was “tailored” and consistent with the Fed’s message that the U.S. is on track for a soft economic landing as the central bank tries to bring inflation back toward its 2 percent target bring. Inflation, which topped 9 percent at its peak last year, is now at 3.7 percent.
Feroli added that while some aspects of the report “suggest a harder landing,” including fewer industries where employment is growing, the employment data currently “looks like Goldilocks.”
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The S&P 500 rose 1 percent in afternoon trading, pushing the stock market index to its best week in a year. The price has gained almost 6 cents this week.
“This jobs report is. . . “We are helping to convince disbelievers that this is pretty much the end of the rate hike cycle,” said Kristina Hooper, chief global markets strategist at Invesco. “We are in a clear disinflationary trend, the economy is cooling and the Fed does not need to raise rates again.”
Job growth is a key indicator for investors and Fed rate-setters, who are monitoring the labor market for signs that the central bank’s tightening campaign is cooling the economy.
Trading in futures markets after jobs data signaled that investors now expect a U.S. interest rate cut in June, compared to their previous expectations of a cut in July. Traders also retreated further from expectations of another interest rate hike this year.
The yield on the two-year U.S. Treasury note, which moves inversely to price and reflects interest rate expectations, fell to a two-month low of 4.81 percent.
But Richmond Fed President Thomas Barkin told CNBC on Friday that it was not yet clear whether interest rates had peaked, adding that the timing of possible rate cuts “is still a long way off in my opinion.”
US President Joe Biden reacted optimistically to the labor market figures, emphasizing that unemployment has remained below 4 percent for 21 months in a row, the longest period in more than 50 years.
According to the Bureau of Labor Statistics, the U.S. unemployment rate rose to 3.9 percent in October, compared to 3.8 percent in September. Average earnings rose slightly by 0.2 percent, slowing slightly from the previous month’s 0.3 percent increase.
Economists said strike action by auto workers likely reduced total new jobs by about 30,000 in October – but underlying data still suggested hiring slowed.
The number of new jobs in August was also revised downwards by 62,000 to 165,000.
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In other figures released Friday, the U.S. services sector also grew more slowly than forecast last month.
Following the release of employment data on Friday, the yield on the 10-year Treasury note, moving in line with growth expectations, fell to its lowest level since late September. By the afternoon it had fallen in New York by 0.11 percentage points to 4.56 percent.
This week’s rally has already resulted in the biggest fall in 10-year Treasury yields since the regional U.S. banking crisis in early March.
The Fed, which left interest rates unchanged on Wednesday, had previously raised them from near zero to a target range of 5.25 to 5.5 percent in March last year.
With investor confidence growing that other major central banks have apparently completed interest rate hikes, the Europe-wide Stoxx 600 ended the week up 3.2 percent.
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In London, the FTSE 100 rose 1.7 percent this week, helped by a rise in interest rate-sensitive property stocks following the Bank of England’s decision on Thursday to leave interest rates unchanged.
Steve Sosnick, chief market strategist at Interactive Brokers, said stock markets were “hypersensitive to any hint” that central bank policies would be less stringent than previously thought.
He added that while stock markets might react slowly to restrictive measures by central banks, they often reacted quickly to a looser stance because it implied that financing would soon become cheaper.
Additional reporting by Kate Duguid and George Steer
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