Wall Street rises after strong jobs data increases rate cut odds

Wall Street rises after fresh data would suggest that the labor market is strong enough to keep the economy going, but not so strong as to raise immediate concerns about inflation.

The S&P 500 added 0.3% and was just above its all-time high reached on Wednesday. It is on track to close its third consecutive week of gains. As of 10:05 a.m. ET, the Dow Jones Industrial Average is up 31 points, or 0.1%, and the Nasdaq Composite Index is up 0.6%.

Stocks rally after the latest jobs report, which sent Treasury yields tumbling and raised traders’ expectations that the Federal Reserve will cut interest rates at its next meeting in two weeks. Although the report showed that US employers hired more workers than expected last month, it also noted that the unemployment rate unexpectedly rose to 4.2% from 4.1%.

“This report doesn’t ruin the Christmas spirit, and the Fed remains on track to cut in December,” said Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management.

The Fed began reducing its main interest rate from a two-decade high in September to offer more support to the slowing labor market, after bringing inflation almost to the 2% target level. Lower rates can ease economic constraints, although they can also fuel inflation.

Wall Street: market expectations

Expectations of a series of cuts from the Fed have been one of the main reasons why the S&P 500 has hit an all-time high 56 times this year. Additionally, the Fed is part of a global trend: 62 central banks have cut rates in the past three months, the most since 2020, according to Michael Hartnett and other Bank of America strategists. However, the jobs report could include some warning signs for Fed officials.

Scott Wren, global market strategist at Wells Fargo Investment Institute, noted that average worker wages were slightly higher than economists expected. While this is good news for workers, it could also maintain inflationary pressure.

“This report tells the Fed that they still need to be cautious, as persistent housing, shelter and wage data show that it will not be easy to significantly reduce inflation in the near term,” Wren commented.

Although traders are betting on a 90% chance that the Fed will cut its main rate in two weeks, there is less certainty about how many additional cuts could be made next year, according to data from CME Group.

For now, the hope is that the labor market can help American consumers continue spending and prevent the economy from entering a recession, something that seemed inevitable when the Fed began aggressively raising rates to control inflation.

Several retailers offered encouraging signs with better-than-expected results in the latest quarter. Ulta Beauty rose 11.8% after beating revenue and profit expectations, driven by new store openings. Lululemon rose 15.8% thanks to strong sales outside the US and profits above analyst estimates.

However, retailers have sent mixed signals about consumer resilience. For example, Target reported weak sales last quarter and gave a pessimistic forecast for the holiday shopping season, while Walmart offered a more optimistic outlook.

A report on Friday suggested that U.S. consumer confidence may be improving more than expected in December. According to a preliminary reading of the University of Michigan survey, sentiment reached its highest level in seven months, with an increase in the purchase of some products due to fear of possible price increases due to higher tariffs than President-elect Donald Trump has threatened to impose.

In technology, Hewlett Packard Enterprise rose 9.7% after reporting stronger-than-expected earnings and revenue. Tech stocks, in general, were one of the main drivers of the S&P 500’s advance over the past week, with companies like Salesforce highlighting the benefits they are reaping from the rise of artificial intelligence.