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08.04.2024 06:41 AM
Behind the scenes of Wall Street's rise: the impact of employment data on the stock market

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At the end of the trading week, American stock markets recorded gains thanks to an optimistic jobs report confirming the strength of the country's economy. This bolstered confidence that the economic downturn could be delayed, despite speculation that the Federal Reserve may revise plans to adjust interest rates.

Growth was noted in all key sectors of the S&P 500 index, among which the communications, industrial and information technology sectors showed the largest gains.

The U.S. Department of Labor said significantly more jobs were created in March than expected and wages continued to rise, signaling the economy is on a strong foundation as it closes out the first quarter.

Such data prompted a reassessment of expectations regarding the Fed's interest rate policy. Experts suggest rate increases may be delayed as the likelihood of a recession appears low. Tom Plumb, president and portfolio manager of Madison, Wisconsin-based Plumb Funds, spoke out.

"As we watch the economy, it is clear that stability does not necessarily lead to inflation. This month's jobs report reinforces the belief that the chances of a recession are diminishing, which is much more important than forecasts for lower interest rates," Plumb said.

The likelihood of interest rates lowering by June and forecasts for their further reduction this year have also decreased.

Fresh data pointing to a slowdown in the US services sector, as well as recent remarks from Federal Reserve Chairman Jerome Powell, have strengthened the view that interest rate cuts are likely to be considered in 2024.

However, on Thursday Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, expressed the view that interest rates may not be needed this year.

A slowdown in year-over-year growth in average hourly earnings could restore confidence that wage growth will moderate, said Dec Mullarkey, director of investment strategy and asset allocation at Boston-based SLC Management.

"At this point, this gives the Federal Reserve additional reason to be cautious and slightly changes the likelihood of a rate cut this year from three to two," he added.

Research among small businesses has found a decline in hiring, while wages remain slightly above the Federal Reserve's 2% inflation target, said Roosevelt Bowman, chief investment strategist at Bernstein Private Wealth Management in New York. .

Next week's consumer price index (CPI) is expected to show core inflation falling to 3.7% in March from 3.8% in the previous month, which is likely to weigh on the Federal Reserve's near-term policy.

The Dow Jones Industrial Average rose 307.06 points (0.80%) to 38,904.04, while the Standard & Poor's 500 rose 57.13 points (1.11%) to 5,204. 34. The Nasdaq Composite Index also posted gains, adding 199.44 points (1.24%) to close at 16,248.52.

However, at the end of the week, after mixed economic data, including reports of activity in the service sector and a strengthening manufacturing sector, all three major indexes recorded declines: the Dow Jones lost 2.3%, the S&P 500 fell 1%, and Nasdaq - by 0.8%.

Money markets are now forecasting about two interest rate cuts over the course of the year instead of three as predicted a few weeks ago, according to LSEG.

Tesla (TSLA.O) deviated from the broader market on the day, with shares down 3.6% following a report that the company would abandon development of a budget car model. The move was expected to make Tesla a consumer-facing company and boost its growth.

Krispy Kreme (DNUT.O) shares rose 7.3% as Piper Sandler analysts revised their rating from neutral to outperform. Shockwave Medical (SWAV.O) also rose 2% after announcing it would buy Johnson & Johnson (JNJ.N) for $12.5 billion.

The yield on 10-year US Treasuries rose 7.5 basis points to 4.384%, with bond prices inversely related to their yield. The US dollar index, which measures its value against a basket of six currencies, rose 0.07%. The spot gold price set a record high, reaching $2,330.06 per ounce, while US gold futures rose 1.6% to $2,345.4.

The MSCI Global Share Index (.MIWD00000PUS) closed up 0.4% despite losses in Europe, where the pan-European STOXX 600 index (.STOXX) was down 0.84%.

However, the US stock market showed gains, with the Dow Jones Industrial Average (.DJI) up 0.77%, the S&P 500 (.SPX) up 0.96% and the Nasdaq Composite (.IXIC) up 1.09%. .

Oil prices continued their upward trend for a second week in a row, boosted by geopolitical tensions in the Middle East, worries about a possible supply crunch and forecasts for stronger demand.

Oil reaching its highest level since October was reflected in the growth of US WTI futures by 32 cents to $86.91 per barrel, while the price of Brent increased by 52 cents, reaching $91.17 per barrel.

In Asia, MSCI's broad index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.45%.

The holiday period in China also contributed to the decline in market activity.

Japan's Nikkei index .N225 came under pressure, down 2%, partly as the yen strengthened in the face of expectations of further interest rate hikes and increased criticism from Japanese officials.

Hong Kong's Hang Seng Index remained unchanged.

Gold prices hit new all-time highs, and the Mexican peso posted its biggest gain since late 2015, which is usually attributed to increased consumer demand in the United States.

Thomas Frank,
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