Wall Street’s main indexes rose on Thursday as a softer-than-expected employment report for June tempered expectations of interest rate hikes by the Federal Reserve.
The closely watched nonfarm payrolls report showed the U.S. economy added 57,000 jobs last month, compared with economists’ estimates for a rise of 110,000. The unemployment rate was 4.2%, in line with expectations of 4.3%.
The report interrupted a run of strong job gains recently and could potentially make the Federal Reserve more reluctant to raise borrowing costs.
Odds of at least one rate hike this year stood at 76%, according to data compiled by LSEG, compared with around 84% before the payrolls report.
“It’s a beautiful number. It’s the best number we could hope for. It says that the job market is doing fine, but it’s not hot enough to accelerate inflation,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.
At 9:48 a.m. ET, the Dow Jones Industrial Average (.DJI), rose 447.72 points, or 0.86%, to 52,752.96, the S&P 500 (.SPX), gained 49.84 points, or 0.67%, to 7,533.51 and the Nasdaq Composite (.IXIC), gained 146.99 points, or 0.56%, to 26,187.02.
BALANCING ACT
Markets had been concerned that stronger labor market data could give the Fed more room to focus squarely on price pressures, especially after an oil shock stemming from the U.S.-Iran war raised inflation concerns.
This report, however, may push policymakers to pay closer attention to the employment side of their mandate, according to eToro U.S. investment analyst Bret Kenwell.
“The new-look Fed has been talking tough on inflation, and a stronger labor market would have only raised the temperature. Today’s report doesn’t scream labor-market trouble, but it does cool the narrative a bit,” he said.
On Wednesday, Fed Chair Kevin Warsh said inflation risks had eased but committed to sticking firmly to the U.S. central bank’s 2% inflation target.
Still, prolonged uncertainty over the Strait of Hormuz could be a risk, especially if hostilities in the Middle East were to resume.
The U.S. and Iran concluded a round of indirect talks on Wednesday with no sign they had made headway toward lasting peace.
The rate uncertainty is coinciding with a delicate moment for the AI trade, as investors debate whether the scorching rally in AI beneficiaries, such as semiconductors, has more room to run.
The Philadelphia SE Semiconductor index (.SOX), opens new tab was flat on Thursday. Ten of 11 major S&P 500 sectors were in positive territory, led by materials (.SPLRCM), and consumer staples (.SPLRCS).
“We are seeing a lot of value outside of AI at the moment. We like the broader stock market,” Lombard Odier’s Ielpo said.
Bending Spoons (BSP.O), slipped 3.9% a day after the Vimeo owner gained 40% in its debut on the Nasdaq.
Advancing issues outnumbered decliners by a 3.85-to-1 ratio on the NYSE and by a 2.48-to-1 ratio on the Nasdaq.
