Stocks closed higher after a softer-than-expected jobs report fueled hopes of an early rate cut

Stocks closed higher after a softer-than-expected jobs report fueled hopes of an early rate cut

US stocks jumped on Friday after new data showed US job growth slowed significantly last month.

After jumping more than 500 points after the opening bell, the Dow closed 450 points higher, or 1.2%; The S&P 500 rose 1.3% and the tech-heavy Nasdaq rose 2%.

The economy added just 175,000 new jobs in April, according to Bureau of Labor Statistics data, well below economists’ expectations for 235,000 jobs and 315,000 jobs added in March. The unemployment rate also rose, to 3.9% from 3.8% the previous month.

While that’s bad news for Main Street, Wall Street is celebrating.

That’s because the Federal Reserve is trying to slow the economy by raising interest rates — the only tool it has to fight inflation. A still robust job market means the central bank can continue to keep rates raised without fear of tipping the economy into recession. If the labor market is weak, the Fed is more likely to consider lowering rates.

Friday’s jobs data “was a big relief for the market, with a softer jobs market and importantly a softer reading of average hourly earnings,” wrote Matt Peron, head of global solutions at Janus Henderson Investors, in a note on Friday. “Overall, this should give the market some hope that inflation is not as sticky as feared and increase the likelihood of a return to the disinflationary trend we saw last year.”

Investors have already raised their expectations for more interest rate cuts by the Federal Reserve this year. They now expect a near 75% chance that there will be at least one rate cut after the central bank’s September meeting, according to CME’s FedWatch tool. That’s up from about 62% just a day ago.

Treasury yields also fell lower on the news. The 10-year yield fell to 4.5% as of 3 p.m. ET, according to Tradeweb. Treasury yields and prices are inversely related.

At a press conference following the Fed’s policy decision on Wednesday to keep interest rates unchanged, Chairman Jerome Powell said that the central bank would act if there was a sharp decline in employment.

“We are also prepared to respond to unexpected weaknesses in the labor market,” he said.

In earnings news, Apple shares rose 6% after the company reported strong earnings for the first quarter of 2024 on Thursday afternoon. The iPhone maker also said it is expected to beat sales estimates for this year.