Makes no mistake; given the situation, Friday’s non-farm payroll release was one of the strongest in years and would have driven the market lower if not for comments by Fed Chair Jerome Powell that followed shortly after the data release. Speaking on a panel that included Janet Yellen, Powell raised the possibility of a pause in the Fed’s interest-rate hike cycle and a possible change in the path of balance sheet reduction (which has been said to be on auto-pilot) in response to investors fleeing U.S. assets due to perceived risks to the economy. It’s the combination of these things that drove the Dow, the S&P 500 and the NASDAQ up 3.3%, 3.4%, and 4.3%, respectively.
A Perfect Blend
The Jobs data showed a headline increase of 312K jobs versus a general consensus expectation of 187K, 58K jobs added to the last 2 months after revisions. The unemployment rate jumped to 3.9, but that is due to a jump in the labor force participation rate to 63.1% which is only the second time that figure has been reached since 2014. Average hourly wages were up $0.11 which is a .04% increase, versus an expected increase of 0.3% and a previous month’s increase of only .02%. Year over year wage growth is now up 3.2%. They were up 3.1% in the last release and were expected to drop back down to an increase of only 3.0%. All this data actually bolsters the Fed’s case that rates could still go up a bit and the balance sheet reduction should continue since job and wage increases could accelerate inflation, which of course speaks to their main mandate of price stability. Powell chose instead to speak softly and put the big stick the Fed carries, behind its back so no one could see it. Markets responded and the bull s exhaled. This wasn’t necessarily a resumption of the bull market for the Dow, S&P 500 and the NASDAQ, but it will be the start of just that if there is positive news from the US/China trade talks, which resume today. Movement on the government shutdown would be the second-to-last domino that could push earnings estimates back up and with it, the markets.