America added far fewer jobs in September than expected, but investors didn’t seem too disappointed: Stocks were mostly unchanged Friday as Wall Street took solace that the unemployment rate continues to drop after the pandemic-fueled spike last year.
The Dow finished the day down nearly 10 points, but it alternated between small gains and declines throughout much of the day. The S&P 500 dipped 0.2% and the Nasdaq fell 0.5% after both also hovered between modest increases and drops.
Friday’s slide marked the end of a three-day winning streak for stocks. But all three indexes ended the week solidly in green, with the Dow having its best week since late June. The Dow is now just 2% below the all-time high it hit in August.
Investors seem to recognize that the jobs data will be choppy for the foreseeable future. Even though the September gains were underwhelming, the government’s revised figures for July and August show that more jobs were added than previously reported.
And as long as Covid-19 continues to disrupt the labor market, the numbers for the next few months will remain hard to predict.
“This is not an economic stall as much as it is a reflection of the Delta variant. Some people view the pandemic as largely over but that’s not true,” said Scott Clemons, chief investment strategist with BBH.
Experts also said the jobs report is unlikely to change the Federal Reserve’s likely plans to announce that it will begin to cut back on, or taper, its monthly bond purchases starting at its next meeting in November.
The Fed’s bond buys have helped keep long-term interest rates low in an attempt to stimulate the economy during the worst of the Covid-19 slowdown.
Taper coming soon but no rate hikes on horizon yet
Strategists believe the Fed has probably made up its mind about tapering soon. But the question is whether investors are ready to see the central bank start to unwind its stimulus.
“It’s time for the Fed to take the training wheels off the economy. The economy is ready. But I’m not so sure if the stock market is ready,” said George Cipolloni, a portfolio manager with Penn Mutual Asset Management.
The fact that jobs gains have slowed will probably lead the Fed to take a gradual approach to tapering. It also means the Fed is unlikely to raise long-term interest rates, which have been near zero since March 2020, just yet. Investors clearly like that news.
“The market’s takeaway from the numbers is that the Fed will not move too quickly with rate hikes,” said Mark Luschini, chief investment strategist at Janney. “The headline number was underwhelming and that will keep the Fed cautious.”
Along those lines, investors are currently betting that the Fed will wait until late 2022 to raise rates and only hike them once more in 2023.
This is the last jobs report before the Fed’s next meeting, a two-day session that concludes on November 3. The October jobs figures will be released on November 5.
Investors will also be watching that report to see whether wages will keep climbing. The market has often feared that higher wages will lead to more inflation, but it appears that investors are now taking a different — and more positive — approach to worker pay.
If people have more money in their pocketbooks, that could lead to a stronger fourth quarter shopping season…which would be good for retail sales and corporate profits.
“Consumers have high savings. Wages are rising. That’s a pretty good story for consumer spending going into the holidays,” said Kathy Jones, chief fixed income strategist at Schwab.
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