On Friday, Wall Street saw a mixed reaction as stocks wavered and Treasury yields surged following the release of a jobs report that showed stronger-than-expected numbers but also some signs of moderation.
The S&P 500 inched up 0.1%, with gains and losses spread evenly across the index. Major tech companies and banks like Apple and JPMorgan Chase provided significant support. The Dow Jones Industrial Average rose by 40 points, or 0.1%, while the Nasdaq composite dipped by 0.1%. Meanwhile, smaller company stocks, represented by the Russell 2000, fell by 1%.
The jobs report revealed that U.S. employers added 272,000 jobs in May, exceeding economists’ expectations and April’s figures. Despite the increase in job additions, the unemployment rate rose for the second consecutive month, indicating a mix of strength and slight weakening in the job market. This ongoing strength has bolstered consumer spending and the broader economy, but it complicates the Federal Reserve’s decision on interest rates.
Following the report, the yield on the 10-year Treasury spiked to 4.43% from 4.29%, and the two-year yield, which is more sensitive to Fed expectations, rose to 4.87% from 4.74%. Investors are hoping for at least one interest rate cut from the Fed by year-end, but the central bank’s battle with inflation, currently around 3%, remains a hurdle. The Fed aims to bring inflation down to its 2% target, but a strong economy might keep prices elevated.
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, expressed concerns that wage pressures and persistent inflation could continue, complicating the Fed’s efforts to manage the economy. A cooling economy could help lower inflation and potentially lead to interest rate cuts, but an excessive slowdown risks triggering a recession, which would negatively impact stock prices.
Recent economic data has suggested a cooling economy, with reports indicating manufacturing contraction, lower-than-expected worker productivity, and a decrease in job openings. These factors, along with gains in chip companies specializing in artificial intelligence, have driven market highs throughout the week.
Next week’s updates on wholesale and consumer prices will be crucial for investors and the Fed to assess the trajectory of inflation. It is expected that the Fed will maintain current interest rates in their upcoming meeting, and investors are now less optimistic about a rate cut in July.
Retail earnings have shown that consumers are pulling back on non-essential purchases, with inflation particularly impacting those with lower incomes. This consumer behavior has supported the economy but also highlighted the challenges posed by persistent inflation.
Among individual stocks, GameStop, a notable player in the meme stock phenomenon, plunged 40% after reporting another quarterly loss and announcing plans to sell up to 75 million more shares.
Globally, European stocks declined, and Asian stock indexes showed mixed results, reflecting the varied economic sentiments across different regions.
