The Dow Jones Industrial Average rose about 700 points on Friday after new data showed a slowdown in wage growth, a positive sign of the Federal Reserve’s fight against inflation that could ease pressure for more rate hikes.
The Dow rose 700.53 points, or 2.1%, to 33630.61. The broad-based S&P 500 rose 86.98, or 2.3%, to 3895.08. The tech-heavy Nasdaq Composite rose 264.05, or 2.6%, to 10569.29.
The day’s rally took all three major US stock indices into positive territory for the first week of 2023. All three were up about 1% or more on the week.
The Labor Department’s monthly jobs report showed that employers added 223,000 jobs in December, the smallest increase in two years but more than the 200,000 expected by economists. The ability of US companies to continue hiring shows that the job market has held up despite the Fed’s rate hikes, which have raised concerns about a possible recession.
The report also showed that wage growth continued to cool. Average hourly earnings rose 0.3% mom in December, compared with a 0.4% increase in November. They rose 4.6% year-on-year, after a revised 4.8% gain in November and well below a peak in March.
“Investors are celebrating the fact that average hourly earnings were lower than expected,” said Michael Arone, chief investment strategist at State Street Global Advisors. “There were fears that wage inflation would remain hot.”
The data reduced fears of a so-called wage-price spiral, with workers demanding wage increases in response to rising prices and the flow of money into their pockets further fueling inflation. Such a scenario could have pressured the Fed to raise rates aggressively. The US Federal Reserve will make its next monetary policy decision on January 31-February 2. 1 meeting.
Some investors said Friday’s jobs report suggested the US economy was on track for a soft landing, where the Fed will hike rates enough to bring down inflation but without triggering a painful downturn.
“There is a real possibility of a soft landing,” said Thomas Hayes, chairman of Great Hill Capital.
Some signs continue to point to an economic slowdown. The Institute for Supply Management’s closely watched barometer of business conditions at service-oriented companies, released Friday, fell to 49.6% in December from 56.5% in November — the first time it has shown a decline since the pandemic began . Any reading below 50% indicates a contraction in activity.
For the past few weeks, money managers have been optimistic that inflation would slow quickly in the coming months, potentially prompting the Fed to start cutting interest rates later this year. But this week has reminded investors that the way forward could be more complicated.
Minutes from the Fed’s most recent monetary policy meeting, released on Wednesday, showed officials expect to hike interest rates further if price pressures prove sustained. Meanwhile, Friday’s hiring data shows the US job market remains strong — a situation that’s good for workers but could add to inflationary pressures.
“The market is already pricing [rate] cuts in 2023, which we believe is inappropriate,” said Hani Redha, global multi-asset portfolio manager at PineBridge Investments. He noted that while data suggests parts of the US economy are clearly slowing, “there are no immediate signs that things are falling off a cliff.”
Some of the key market trends seen over the past year continue into 2023.
Photo: Michael M. Santiago/Getty Images
Mr. Redha said he will also be closely monitoring the company’s results during the fourth-quarter earnings season, which begins in earnest next week. “For us, the key is to monitor profitability and the response to it and what companies are doing with their workforce,” he said.
Friday’s rally was broad-based with all 11 sectors of the S&P 500 posting gains. Costco Wholesale was among the best-performing stocks in the index. Its shares rose $32.68, or 7.3%, to $482.87 after the wholesaler reported strong holiday sales.
World Wrestling Entertainment rose $12.23 a share, or 17%, to $84.27 after its former chief executive Vince McMahon said he plans to return to the company and seek a sale of the business. Bed Bath & Beyond continued its slide, plunging 38 cents, or 22%, to $1.31 a share in a day after the retailer warned against filing for bankruptcy protection.
Bond yields fell after Friday’s jobs report. The benchmark 10-year Treasury yield fell to 3.570% from 3.720% on Thursday.
Overseas, the pan-continental Stoxx Europe 600 rose 1.2%.
Asian indices were mixed. Hong Kong’s Hang Seng fell 0.3% on Friday, while mainland China’s Shanghai Composite gained less than 0.1%. Japan’s Nikkei 225 gained 0.6%.
Write to Alexander Osipovich at [email protected] and Caitlin McCabe at [email protected]
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