NEW YORK — Some relief is returning to the rattled U.S. bond market on Friday after the latest jobs report cooled worries that a potentially hot U.S economy could make inflation much worse. The resulting drop in bond yields helped U.S. stocks climb back toward their all-time high.
The S&P 500 rose 0.9 per cent and pulled within 0.8 per cent of its record set in August. The Dow Jones Industrial Average was up 320 points, or 0.6 per cent, as of 9:35 a.m. Eastern time, and the Nasdaq composite was 1.3 per cent higher.
All of Wall Street got a jolt after the U.S. government said employers across the country added 29,000 jobs to their payrolls last month. That was fewer than economists expected and a slowdown from August’s hiring rate of 133,000.
More importantly for financial markets, it tamped down concerns that the U.S. economy could be so strong that it gives inflation enough fuel to drive even higher. Inflation already remains well above what anyone would like, and the U.S. Federal Reserve recently raised its main interest rate for the first time in three years in hopes of reining in the fast increases for the cost of living.
Fears jumped in particular late last month, when a preliminary report suggested growth in U.S. business activity is surging at its fastest pace in years, along with businesses’ costs.
Friday’s jobs data eased the concerns about a potentially overheating economy, at least for now. And it pushed traders to pull back on bets that the Fed will hike its main interest rate again at its next meeting later this month. They now see just an 18 per cent probability of that, down from 64 per cent a week ago, according to data from CME Group.
“This report strengthens the case for the Federal Reserve to remain patient,” according to Adam Schickling, senior economist at Vanguard. “The labor market has not deteriorated sharply, but there is also little evidence that it has meaningfully strengthened, giving policymakers reason to wait for additional data.”
The pullback in expectations for an October hike to the federal funds rate helped yields ease for all kinds of Treasury yields.
The centerpiece of the U.S. bond market, the 10-year Treasury, saw its yield fall to 5.20 per cent after nearing 5.35 per cent on Thursday, when it touched its highest level since 2002.
Lower yields can help the economy by making it more affordable for everyone to borrow money. Higher yields, meanwhile, tend to undercut prices for stocks and other investments.
Of course, a solid U.S. economy and worries about inflation are only a couple of the many drivers that have sent Treasury yields to their highest levels in decades.
Concerns about the big spending that governments worldwide are doing, along with the mountains of debt they’re racking up, continue. In France, for example, bond yields have been particularly shaky as the government contends with its record debt and strained budget.
On Friday, though, a drop for oil prices helped take some of the pressure off bond markets worldwide. The price for a barrel of Brent crude fell 2.6 per cent to US$99.64. It’s been swinging sharply on uncertainty about when the war with Iran will allow the global oil industry to return to normal.
Lower yields in the bond market help investors justify paying higher prices for stocks, even those that get criticized for being too expensive. That helped companies in the artificial-intelligence industry add to some of their already stellar gains.
Nvidia’s 2.1 per cent rise was the single strongest force lifting the S&P 500.
Such gains helped more than make up for a 6.1 per cent drop for Nike. The sneaker and athletic apparel company reported a stronger profit for the latest quarter than analysts expected, but its revenue weakened by more than feared. Nike also gave a forecast for profit this fiscal year that fell short of analysts’ expectations.
In stock markets abroad, indexes rose in Europe and bounced back from sharp losses taken a day earlier after bond yields swung sharply across the continent.
Asian indexes were mixed, with Hong Kong’s Hang Seng dropped 2.6 per cent but South Korea’s Kospi adding 0.5 per cent.
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AP Business Writers Chan Ho-him and Michelle Chapman contributed to this report.
By Stan Choe
