Markets soar as weak jobs report raises Fed rate cut hopes

Dow rose 450, advancers over decliners 3-1 & NAZ gained 315.  The MLP index was up 2+ to the 361s & the REIT index added 1+ to the 362s.  Junk bond funds saw a little buying & Treasuries had fairly heavy buying which reduced yields (more below).  Oil dropped almost 1 to 78 & gold was off 3 to 2306 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Take a moment to consider your financial situation: Are you better or worse off financially than you were a year ago?  Do you think you'll be better off a year from now?  And where do you see the country headed in the next 5 years?  These are the kinds of questions used by the University of Michigan to calculate the Consumer Sentiment Index, an economic indicator measuring how people feel about the economy.  “It’s a measure that we can compare over time and get a pulse on the attitudes of consumers,” said Joanne Hsu, director of the Surveys of Consumers at the University of Michigan.  “Which is important given that consumer spending is over two-thirds of GDP.”  That survey & others show there is a pervasive sense of disconnect between the overall economic picture & how people feel about the economy.  Despite slowing inflation, a healthy labor market with record-low unemployment, & stocks that remain in a bull market, consumer sentiment remains below pre-pandemic levels.  “People don’t tend to think in terms of inflation—economists do,” said Paul Donovan, chief economist at UBS Global Wealth Management.  “But economists are not normal. Normal people think in terms of price levels.”

Why many Americans still feel bad about the economy despite strong data

The number of Americans applying for unemployment benefits was unchanged last week & remains historically low as the labor market continues to show resiliency in the face of high interest rates & elevated inflation.  The Labor Dept reported that unemployment claims for last week was 208K, the same as the previous week.  That's the fewest since mid-Feb.  The 4-week average of claims, which softens some of the weekly volatility, fell by 3K to 210K.  Weekly unemployment claims are considered a proxy for the number of US layoffs in a given week & a sign of where the job market is headed.  They have remained at historically low levels since the pandemic purge of Ms of jobs in the spring of 2020.  The Federal Reserve raised its benchmark borrowing rate 11 times beginning in Mar of 2022 in a bid to stifle the 4-decade high inflation that took hold after the economy rebounded from the COVID-19 recession of 2020.  The Fed's intention was to loosen the labor market & cool wage growth, which it said contributed to persistently high inflation.  Many economists thought there was a chance the rapid rate hikes could cause a recession, but jobs have remained plentiful & the economy forged on thanks to strong spending by US consumers.  Last month, US employers added a surprising 303K jobs, yet another example of the US economy’s resilience in the face of high interest rates.  The unemployment rate dipped from 3.9% to 3.8% & has now remained below 4% for 26 straight months, the longest such streak since the 1960s.  There are signs that the labor market may be softening.  Earlier this week, the gov reported 8.5M job openings, the lowest number of vacancies in 3 years.

Number of Americans Applying for Jobless Claims Remains Historically Low

Treasury yields dropped after Apr's jobs report showed weaker-than-expected payrolls growth & an unexpected tick higher in the unemployment rate.  The yield on the 10-year Treasury was off by 6 basis points to 4.51% & the 2-year Treasury yield was last 7 basis points lower to 4.808%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  US payrolls expanded by just 175K last month, the Bureau of Labor Statistics said, short of the estimate of 240K.  The unemployment rate rose to 3.9%, against an estimate that called for it to hold steady at 3.8%.  Wage growth was also less than expected.  The Federal Reserve earlier this week kept interest rates unchanged, in line with expectations.  Policymakers noted that “it will not be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”  However, Fed Chief Jerome Powell did acknowledge that a weakening labor market could cause the central bank to act, citing its dual mandate of stable prices & max employment.  “We’re also prepared to respond to an unexpected weakening in the labor market,” Powell said on Wed.  Uncertainty about how many rate cuts, if any, will take place this year & when they might begin has grown in recent weeks, with many investors now expecting fewer cuts & not until later in the year.  Today's weak labor report could allow the Federal Reserve to move sooner to cut rates.

10-year Treasury yield briefly dives below 4.5% as unemployment rate rises to 3.9%

Gold fell to a one-month low despite weaker-than-expected US jobs data, extending a correction from last month's stellar rally as investors booked profits while geopolitical risks eased.  Spot gold fell $2 to $2300 per ounce to its 2nd consecutive weekly fall, down 1.8%.  US gold futures were marginally lower at $2309.  Prices quickly gave up gains after jumping as high as $2320 immediately after the release of data showing US nonfarm payrolls increased by 175K jobs last month, lower than the forecast of 243K.  Though the jobs data reinforced expectations that the Federal Reserve will start cutting interest rates this year, which should be supportive for zero-yield bullion, this prompted investors to switch to riskier assets instead.  Gold also seemed to largely ignore a resultant slide in Treasury yields.  Safe-haven bullion has retreated 5.7% (about $140) since hitting a record high of $2431 in Apr, driven by flare-ups in the Middle East & strong central bank buying.

Gold resumes retreat despite soft jobs report as traders book profits

Oil prices edged lower, for their steepest weekly loss in 3 months, as investors weighed weaker-than-expected US jobs data &d the timing of a Federal Reserve interest rate cut.  Brent crude futures for July were down 71¢ (0.8%) to settle at $82.96 a barrel & US West Texas Intermediate (WTI) crude for Jun fell 84¢ (1.1%) to settle at $78.11 a barrel.  Both benchmarks are set for weekly losses as investors are concerned that higher-for-longer interest rates will curb economic growth in the US, the world's leading oil consumer, as well as in other parts of the world.  Brent was on course for a weekly decline of about 7% while WTI was headed for a loss of 6.5% on the week.  US job growth slowed more than expected in Apr & the annual wage gain cooled, data showed today, prompting traders to raise bets that the US central bank will deliver its first interest rate cut this year in Sep.

Oil prices fall, head for steepest weekly drop in three months

Investors liked the jobs report & bought stocks.  That enthusiasm was good enough to give a Dow a weekly advance of 436.  However it looks like the first rate cut is a few months away & waiting for that cut requires patience.

Dow Jones Industrials