Stocks jumped this morning as investors processed the latest employment data, which showed a sudden and abrupt drop-off in job growth. This flashed major dovish signals to bulls, who were more than happy to continue the buying frenzy of the last few sessions.
The Dow Jones Industrial Average climbed by 0.5%, adding 160 points to its tally, while the S&P 500 and the Nasdaq Composite both advanced by 0.6%, reflecting a positive sentiment across the board.
The labor market’s expansion appeared to lose some steam in October, with the Bureau of Labor Statistics reporting a nonfarm payroll increase of 150,000 jobs, falling short of the 180,000 job gain economists had forecasted. This slowdown was accompanied by a slight uptick in the unemployment rate, which rose from 3.8% to 3.9%—the highest it’s been since January of the previous year.
The manufacturing sector felt the impact of labor disputes, with employment dropping by 35,000 in October, largely due to strikes at major auto manufacturers. This was a significant factor in the month’s underwhelming job figures, although a tentative agreement with the United Auto Workers suggests some reversal of this trend in the coming months.
Despite a strong showing in September’s job data, revisions have pared back those gains by 39,000 jobs, indicating that the robustness of the labor market was once again overstated. August’s jobs tally was also dropped by 62,000, bringing the total downward revision to 101,000. Eight out of the last eight jobs reports have been revised substantially lower.
The household survey, from which the unemployment rate is derived, showed a 348k drop in employed workers. That’s the biggest pullback since the Covid lockdowns began.
Wage growth, a critical indicator of inflation and labor market dynamics, increased by a modest 0.2% over the month and 4.1% over the past year, slightly below the expectations of a 0.3% monthly increase and a 4% annual rise.
The labor force participation rate saw a minor decrease to 62.7% from the previous month’s 62.8%, and average weekly hours worked also dipped to 34.3 from September’s 34.4 hours.
Healthcare saw the most significant job gains, with 58,000 new positions, while government employment rose by 51,000, reaching its level before the pandemic hit.
This employment report arrives at a pivotal moment for the markets, which have been buoyed since the Federal Reserve’s latest policy decision. The consensus among investors is that Fed Chair Jerome Powell’s recent commentary suggests the central bank is likely to hold off on rate hikes in December and may be concluding its current cycle of increases.
Powell acknowledged the necessity of some labor market cooling to sustain the downward trend in inflation, although he stopped short of confirming this as a definite path forward.
Following the release of the jobs report, market sentiment, as reflected by the CME FedWatch Tool, indicates a 90% likelihood that the Fed will not implement a rate hike at its next gathering, a notable increase in confidence from just a day earlier.
Tech stocks, initially shaken by Apple’s guarded outlook despite surpassing earnings expectations, began to rebound as the market weighed the implications of the tech giant’s projections on consumer strength and the Fed’s assessment of the economic impact of its tightening measures.
Investors are now contemplating the durability of consumer spending in light of a series of subdued earnings reports and considering how these might influence the Fed’s view on the effectiveness of its efforts to temper the economy.
Despite today’s soft jobs data, it looks like bulls may have punched themselves out after an impressive 5-day win streak. Yes, stocks are likely headed higher throughout the month of November but don’t be surprised if we get a retracement next week prior to the next big blast.
The market’s currently enjoying a short squeeze. It won’t last forever, and what comes next will be even more important in deciding whether the market can stage a sustainable rally into Christmas.