Wall Street surged to a higher close on Friday as a softer-than-expected employment report bolstered the case for rate cuts from the Federal Reserve while also providing evidence of U.S. economic resilience.
All three major U.S. stock posted robust gains. The tech-heavy Nasdaq led the pack, rising 2% with an assist from Apple shares following the iPhone maker’s record share buyback announcement. The TSX also rose, but lagged the robust advances in the U.S.
All three U.S. indexes notched their second straight Friday-to-Friday gains, capping a week in which markets were encouraged by Fed Chair Jerome Powell’s more dovish-than-expected statements following Wednesday’s rate decision.
The Labor Department’s employment report showed the U.S. economy added fewer jobs than expected, while the unemployment rate ticked higher and wage growth unexpectedly cooled.
The report likely hit the sweet spot for the Fed, offering signs the labour market is softening, which Powell has deemed necessary to put inflation on a sustainable downward path. The report also provided assurances on U.S. economic health.
The report prompted investors to raise bets the Fed would implement its first rate reduction in September.
Any flexibility that the Fed gets in bringing ahead rate cut chances helps the Bank of Canada from not diverging too much from its U.S. counterpart, as that could weaken the local currency and trigger inflationary pressures.
Traders increased their bets for a rate cut by the BoC in June to 75% after the U.S. jobs data, from 56% a day before.
“The investor narrative remains the Fed and interest rates and today’s weak jobs report puts rate cuts firmly on the Fed’s 2024 agenda,” said Greg Bassuk, CEO at AXS Investments in New York. “And while ‘higher for longer’ remains the roadmap, this economic data is being warmly embraced by investors, Wall Street and Main Street, across all sectors”
North American Treasury yields fell. Yields on the 10-year Canadian bond were down 8.3 basis points to 3.650% and the loonie firmed slightly.
Federal Reserve officials weighed in on the jobs data.
Fed Governor Michelle Bowman reiterated her willingness to hike rates if inflation progress reverses, and Chicago Fed President Austan Goolsbee said the employment report boosted confidence the economy is not overheating.
“Let’s remember, it’s early May; we shouldn’t pretend that the year’s over or somehow every card has been played,” said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York. “But I don’t think for a second that any Fed official really believes that a rate hike is appropriate given current conditions and data.”
Going forward, many analysts expect the momentum seen in the stock market to continue next week.
“Market technicals have turned decisively bullish, with all major indices now trading above their critical 50-day moving averages,”said Brandon Michael, senior investment analyst at ABC Funds.
First-quarter earnings season is approaching the final stretch, with 397 of the companies in the S&P 500 having reported as of Friday morning. Of those, 77% have posted consensus-beating results, according to LSEG data.
Apple surged 6.0%, after the company unveiled a record US$110 billion share buyback program and beat quarterly expectations.
Shares of biotech firm Amgen jumped 11.8% after encouraging interim data on its experimental weight-loss drug MariTide and first-quarter earnings.
Travel platform Expedia cut its full-year revenue growth forecast, sending its shares sliding 15.3%.
The Dow Jones Industrial Average rose 450.02 points, or 1.18%, to 38,675.68, the S&P 500 gained 63.59 points, or 1.26%, to 5,127.79 and the Nasdaq Composite added 315.37 points, or 1.99%, to 16,156.33.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 128.52 points, or 0.59%, at 21,951.74, paring most of its losses in the past week.
The TSX was boosted by technology shares, which advanced the most in the day, led by e-commerce firm Shopify which was up 3.4%. It is the third biggest company in Canada by market capitalization.
However, Open Text continued its decline for the second consecutive day with the shares in the software company slumping by over 14% on Friday after an 18.6% fall a day earlier.
Of the 11 major sectors in the S&P 500, all but energy ended the session in positive territory, with technology claiming the largest percentage gain at 3.0%.
Advancing issues outnumbered declining ones on the NYSE by a 3.62-to-1 ratio; on Nasdaq, a 2.00-to-1 ratio favored advancers. The S&P 500 posted 21 new 52-week highs and one new low; the Nasdaq Composite recorded 95 new highs and 65 new lows. Volume on U.S. exchanges was 10.72 billion shares, compared with the 11.07 billion average for the full session over the last 20 trading days.
Reuters, Globe staff
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