Dow’s Spontaneous Recovery Crosses 1,100 Points as Dismal Jobs Data Fuel Rate-Cut Bets

The Dow and broader U.S. stock market extended their relief rally on Friday after weaker than expected jobs data fueled expectations that the Federal Reserve will move more quickly to cut interest rates. The weak jobs report also stoked fears that the U.S. economy was succumbing to trade-war uncertainty, which sent bond yields tumbling to almost two-year lows.

Dow’s 1,100-Point Recovery

All of Wall Street’s major indexes booked solid gains on Friday, extending their relief rally to four days. The Dow Jones Industrial Average climbed 263.28 points, or 1%, to 25,983.94. The blue-chip index was on track to close above 26,000 for the first time in a month before paring gains in afternoon trading.

Dow Jones Industrial Average
The Dow Jones Industrial Average has recovered 1,168 points since Monday. | Source: Stockcharts.com

The broad S&P 500 Index of large-cap stocks climbed 1.1% to close at 2,873.34, with nine of 11 primary sectors reporting gains. Five of those sectors rose by at least 1%.

Surging technology shares drove the Nasdaq Composite Index to its highest closing price in over two weeks. The tech-driven average rose 1.7% to finish at 7,742.10.

Nonfarm Payrolls Miss the Mark

U.S. job creation slowed significantly in May, signaling that businesses are adopting a more cautious approach to hiring amid escalating trade-war tensions with China and Mexico.

Employers added just 75,000 workers to payrolls in May, marking one of the slowest months of hiring since the financial crisis, the Labor Department reported Friday in Washington. Analysts in a median estimate had called for a monthly gain of 185,000.

Unemployment held steady at 3.6%, as workforce participation remained unchanged. A low unemployment rate sometimes reflects low workforce participation rates.

Average hourly earnings, which are a proxy for wage inflation, rose 0.2% last month and 3.1% annually. Both readings were slightly below forecasts.

Bond Yields Plunge

The weak jobs report had another impact on U.S. markets: it caused investors to increase their holdings of government bonds, driving yields sharply lower.

The yield on the benchmark 10-year Treasury reached bottomed at 2.05%, according to CNBC, its lowest in 21 months. The yield closed at 2.084%, down 0.039 basis points. Yields fall when bond prices rise.

Yields have been in a downward spiral since the beginning of May, as escalating trade tensions and signs of economic stagnation caused investors to doubt the health of the U.S. recovery. The latest jobs report is just one of many to have badly missed the mark over the past month. All indicators are pointing to a sharp deceleration in the U.S. economy in the second quarter. The economy expanded 3.1% annually in the first quarter, far exceeding forecasts.

Wall Street is almost certain that the Federal Reserve will move to lower interest rates following its July policy meeting. Fed Fund futures prices, which allow traders to bet on the direction of monetary policy, imply an 87.2% likelihood of a July rate cut.

Featured image courtesy of Shutterstock. Chart via Stockcharts.com. 

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi