By Corrie Driebusch
U.S. stocks finished the week higher after the August jobs
report showed hiring slowed in a month racked by trade threats,
likely keeping the Federal Reserve on track to cut interest rates
again later this month.
The report underscored the delicate balance facing markets in
recent months. Investors are on one hand deeply uneasy about signs
economies around the world are slowing. Any threats to growth, be
it from rising tariffs to political instability, can send markets
reeling.
On the other hand, signs of slowdown are often met with central
bank interference, such as the Fed cutting short-term interest
rates -- a boon for shares of U.S. companies.
Investors wrestled with those competing dynamics Friday, sending
the Dow Jones Industrial Average up 69.31 points, or 0.3%, to
26797.46. The S&P 500 rose 2.71 points, or 0.1%, to 2978.71.
Weakness among technology companies dragged the tech-heavy Nasdaq
Composite down 13.75 points, or 0.2%, to 8103.07. All three indexes
ended the week up at least 1.5%.
The Labor Department said Friday that the U.S. added 130,000
jobs in August, slightly short of the 150,000 projected by
economists surveyed by The Wall Street Journal. The unemployment
rate, as expected, remained at 3.7%.
Investors watch the jobs data closely for signs of economic
health, and August's jobs figures took on even more importance
heading into the Federal Reserve's meeting later this month.
"We had enough in the jobs report to back you away from
recession fears, but it wasn't too hot either," said Jim Paulsen,
chief investment strategist at the Leuthold Group, noting that he
liked to see an increase in hours worked and an increase in average
hourly earnings. However, "it still very much allows the Fed to cut
rates."
During a speech in Zurich Friday, Fed Chairman Jerome Powell
gave little pushback against expectations that the Fed is gearing
up to cut interest rates again. He also said the U.S. economy faces
a favorable trade outlook and global slowdown risks, adding the Fed
is "not forecasting or expecting a recession."
The jobs report didn't do much to alter traders' expectations
for Fed rate cuts. Federal-funds futures point to the market
pricing in a 92% chance of the Fed lowering its benchmark rate by
25 basis points at its meeting later this month, just a hair lower
than Thursday's 95%, according to CME Group. Market expectations
for a 50-basis point cut remain at zero -- unchanged over the past
week.
The employment data comes on the heels of a rally in stock
markets around the globe. Including Friday's gain, the S&P 500
is up six of the past seven trading sessions and is less than 2%
away from its July record.
This week's gains come as trade tensions between the U.S. and
China and political instability in Hong Kong and Great Britain
appeared to ease.
Despite the recent optimism among traders and investors, there
are reasons to remain wary. Bond markets are sending warnings about
the risk of a coming recession with long-term bond yields falling
below the levels of shorter-term yields, a concept known as an
inversion of the yield curve.
Government bond yields slipped after the jobs data, with the
yield on the benchmark 10-year note settling at 1.552%. Bond yields
and prices move in opposite directions.
Meanwhile, the back-and-forth between the U.S. and China on
trade is starting to inflict real economic damage. Analysts expect
companies in the S&P 500 with higher international revenue
exposure to report year-over-year declines in earnings and revenue
in the third quarter, while those with lower global revenue
exposure are expected to report growth in both areas, according to
FactSet.
Data released earlier this week showed the U.S. manufacturing
sector shrank for the first time in three years last month, and
that trade was "the most significant issue."
Tuesday's Institute for Supply Management's manufacturing index
report followed other data that points to contracting factory
activity in the U.K., Germany, Japan and South Korea, sparking
concern about a manufacturing slowdown. While Tuesday's reading
sent stocks lower, they bounced back as worries eased slightly
about growing unrest in Hong Kong and messy politics in the U.K.
over Brexit.
The bounceback lifted major stock indexes around the world
toward big gains for the week. The Stoxx Europe 600 ended the week
up 2%, its third consecutive weekly rise. In Asia, the Shanghai
Composite finished the week up 3.9%, while Hong Kong's Hang Seng
gained 3.8% in the same period.
Helping buoy stocks was central bank intervention around the
globe. China's central bank reduced reserve requirements for
lenders Friday, marking a fresh effort to support the economy.
Analysts at Citi had flagged expectations of further policy easing
last month as credit data deteriorated, including cuts in the
reserve ratio. The move came after Asian stock markets had already
closed.
The Russian central bank also cut its benchmark rate Friday,
joining a wider drive for looser monetary policy around the world
since the Fed cut interest rates for the first time in a decade at
its last meeting.
--Avantika Chilkoti contributed to this article
Write to Corrie Driebusch at corrie.driebusch@wsj.com
(END) Dow Jones Newswires
September 06, 2019 16:49 ET (20:49 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.