Fed’s Jerome Powell says jobs report reflects healthy labor market, speaking at a panel in Zurich
The Dow and S&P 500 booked slight gains on Friday, but the Nasdaq slumped, after a jobs report for August showed a fewer-than-expected 130,000 new jobs were created in the month. The employment data, perhaps, supports market hopes for a rate cut later this month but does highlight some fragility in an area of the economy that has been mostly steadfastly solid.
Fed Chairman Jerome Powell, meanwhile, described the economy and labor market as healthy, speaking at a question-and-answer in Switzerland after the jobs report.
How did major benchmarks perform?
The Dow Jones Industrial Average YMU19, +0.51% rose 69.31 points, or 0.3%, to 26,797.46, while the S&P 500 index ESU19, +0.37% added 2.71 points, or about 0.1%, to 2,978.71. The Nasdaq Composite Index COMP, -0.17%, however, slipped 13.75 points, or 0.2%, to finish at 8,103.07.
For the week, the Dow notched a 1.5% rise, the S&P 500 and Nasdaq both rose 1.8% over the period, according to FactSet data.
The Dow stands 2.1% shy of its record closing peak at 27,359.16, hit July 15, while the S&P 500 is about 1.6% short of its all-time closing high set July 26 at 3,025.86, and the Nasdaq is 2.7% from its July 26 record at 8,330.21.
What drove the market?
Echoing his speech two weeks ago in Jackson Hole, Wyoming, Powell said he is “not forecasting or expecting a recession” though he sees “significant” downside risks that the central bank will monitor.
Powell’s remarks—the last any Fed official will make due to a media blackout period in the run-up to the Fed’s Sept. 17-18 meeting—come after the Labor Department said the U.S. economy added 130,000 jobs in August, below the 173,000 expected by economists polled by MarketWatch and down from the 159,000 jobs added in July.
The unemployment rate remained steady at 3.7%, while average hourly earnings rose 0.4% month-over-month and 3.2% year-over-year. The private sector added only 96,000 jobs, as federal government hiring, mostly temporary Census-related employment, added 28,000 jobs.
Still, Powell described the labor market in his comments in Switzerland as solid.
Some market analysts agreed.
“The headline miss is disappointing for investors, but I wouldn’t overreact as there is underlying strength to this report, including average weekly hours worked picking up, the labor-force participation rate rising and strong wage growth,” said Michael Arone, chief investment strategist for State Street Global Advisors.
Average hours worked ticked up to 34.4 in August from 34.3 in July, which was close to a two-year low. Economists pay close attention to this measure because it can signal job losses ahead, as companies tend to cut back hours as a cost-cutting measure before laying off workers.
“I think this report will be positive for investors in that its going to continue to strengthen the case that the Fed should cut rates at the next meeting, and it will keep the Trump administration from ratcheting up trade tensions at the time when the jobs market is softening,” Arone said.
Following the jobs report and Powell’s speech, fed-funds futures investors were predicting at 91.2% probability that the Fed will cut rates at the meeting, with a 8.8% probability of no cut. These odds were largely unchanged by Friday’s events.
Meanwhile, investors have been focused on China after the world’s second-largest economy cut its reserve-requirement ratio by a half-point, marking the third such move, among dozens of other stimulus measures, implemented by the Chinese government. Market participants are focused on China’s economy because weakness in the country could filter through to the rest of the global economy.
On Thursday, markets rallied as Chinese and American officials set the stage for negotiations toward a resolution in their trade conflict to take place in “early October.” An upbeat reading from ISM on activity in the services sector also provided support in the Thursday session.
Which stocks were in focus?
Shares of Zoom Video Communications Inc. ZM, -7.85% lost 7.9%, even after it reported earnings and sales that beat Wall Street expectations Thursday evening. The video-communications provider went public in April and has risen more than 250% since then, giving it the highest enterprise value-to-sales ratio of any company worth more than $500 million.
DocuSign Inc. DOCU, +21.66% also reported earnings after the close of trade Thursday, beating analysts revenue forecasts for the second-quarter providing bullish third-quarter guidance. Shares rose 22% early Friday.
Shares of Mallinckrodt PLC MNK, +17.61% were up nearly 18%, a day after the specialty drug company suffered a record-low close on a report that it had hired restructuring advisers and was considering bankruptcy ahead of federal opioid trials.
How did other markets fare?
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -0.05% fell 1.7 basis points to 1.552%, but climbed 4.9 basis points for the week, marking its largest weekly gain since July 12.
In commodities markets, the price of crude oil CLV19, +0.76% reversed early losses to settle 0.4% higher at $56.52 a barrel on the New York Mercantile Exchange, following rig-count data.
Gold GCZ19, -0.69% finished 0.7% lower at $1515.50 an ounce, following its sharpest daily decline in about three years, on a dollar basis on Thursday. The ICE U.S. Dollar Index DXY, -0.41% a measure of the U.S. currency against a basket of six major rivals, was little changed but closed out the week 0.5% lower.
In Asia, equities closed higher, as the China CSI 300 000300, +0.59% rose 0.6% and Japan’s Nikkei 225 NIK, +0.54% climbed 0.5%, while Hong Kong’s Hang Seng Index HSI, +0.66% advanced 0.7%.
European stocks, meanwhile, were mostly higher, with the Stoxx Europe 600 SXXP, +0.32% closing up 0.2%.