Stocks gain on increased expectations for rate cut following soft jobs data
07-Jun-19 16:25 ET
Dow +263.28 at 25983.94, Nasdaq +126.55 at 7742.08, S&P +29.85 at 2873.34
briefing.com
[BRIEFING.COM] The S&P 500 advanced 1.1% on Friday, and 4.4% for the week, after soft employment data for May increased expectations for the Fed to cut rates this year. Leadership from some of the stock market's biggest names set the pace.
The Dow Jones Industrial Average (+1.0%), the Nasdaq Composite (+1.7%), and the Russell 2000 (+0.7%) extended their weekly gains to 4.7%, 3.9%, and 3.3%, respectively.
The Employment Situation Report for May showed nonfarm payrolls increase by just 75,000 (Briefing.com consensus 180,000) and average hourly earnings increase 0.2% (Briefing.com consensus 0.3%). Year-over-year, average hourly earnings were up 3.1% versus 3.2% in April.
The market is hoping the data-dependent Fed will consider the soft job creation and soft wage-based inflation in its upcoming meetings as a case to lower the fed funds rate.
This optimism contributed to big gains in Facebook (FB 173.35, +5.02, +3.0%), Apple (AAPL 190.15, +4.93, +2.7%), Amazon (AMZN 1804.03, +49.67, +2.8%), Alphabet (GOOG 1066.04, +21.70, +2.1%), and Microsoft (MSFT 131.40, +3.58, +2.8%).
In turn, their outperformance contributed to the leadership from the S&P 500 information technology (+1.9%), consumer discretionary (+1.6%), and communication services (+1.5%) sectors. The financials (-0.2%) and utilities (-0.7%) sectors, however, were left out of the rally.
Aside from the bullish disposition in equities, the fed funds futures market and Treasury market have been flashing strong expectations for at least one rate cut this year.
The fed funds futures market currently sees an 85.6% implied likelihood of a rate cut at the July 30-31 FOMC meeting. On Friday, the 2-yr yield declined five basis points to 1.84%, and the 10-yr yield declined four basis points to 2.08%. The U.S. Dollar Index declined 0.5% to 96.58. WTI crude rose 2.4% to $53.92/bbl.
In earnings news, shares of Beyond Meat (BYND 138.65, +39.15) shot up 39.4% on positive results and guidance. Zoom Video Communications (ZM 94.05, +14.62) posted a humbler, but still impressive, gain of 18.4% after it also pleased investors with its earnings results and guidance.
Separately, immigration talks with Mexico were still ongoing in Washington. Market participants were hopeful that there could still be a deal to avert the planned tariffs on Mexico from going into effect on Monday.
Reviewing Friday's economic data, which included the Employment Situation Report for May, Wholesale Inventories for April, and Consumer Credit for April:
- The May employment report was soft on job creation and soft on average hourly earnings growth. May nonfarm payrolls increased by 75,000 (Briefing.com consensus 180,000). May average hourly earnings were up 0.2% (Briefing.com consensus +0.3%), after increasing 0.2% in April.
- The key takeaway from the report is that it gives the Fed some data-based cover to cut the target range for the fed funds rate in the not-too-distant future, assuming some positive development on the trade front doesn't unleash animal spirits in the capital markets and global economy.
- Wholesale inventories increased 0.8% in April (Briefing.com consensus +0.7%) on top of an upwardly revised unchanged indication (from -0.1%) for March. Wholesale sales declined 0.4% following a downwardly revised 1.8% increase (from 2.3%) in March.
- The key takeaway from the report is that inventory growth continues to outpace sales growth on a year-over-year basis, which should help keep price pressures in check.
- Total outstanding consumer credit increased by $17.5 billion in April (Briefing.com consensus $13.0 billion) after increasing an upwardly revised $11.0 billion (from $10.3 billion) in March.
- The key takeaway from the report is that the increase in consumer credit in April was driven by both nonrevolving credit and revolving credit, unlike the gain in March which was driven entirely by nonrevolving credit.
Looking ahead, investors will receive the JOLTS - Job Openings and Labor Turnover Survey for April on Monday.
- Nasdaq Composite +16.7% YTD
- S&P 500 +14.6% YTD
- Russell 2000 +12.3% YTD
- Dow Jones Industrial Average +11.4% YTD
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