U.S. stocks rose sharply on Thursday, boosted by investor optimism that the Federal Reserve may have ended the cycle of Fed interest rate hikes that have strained the economy.
The Dow Jones Industrial Average rose 565 points, an increase of 1.7%. At the same time, the S&P 500 Index, a broad measure of the performance of US stocks, rose 1.9%, and the technology-heavy Nasdaq Composite Index rose 1.8%.
Both the S&P 500 and Dow are on pace to post their most significant weekly gains this year. Additionally, the Dow had its best trading day since June.
In the bond market, Treasury yields have fallen dramatically from last month’s peak of more than 5%. In particular, the 10-year Treasury yield fell about 0.12% on Thursday, closing at 4.66%.
Financial markets reacted Wednesday after the Federal Reserve decided to keep interest rates unchanged, marking the second consecutive period of unchanged interest rates. As a result, the Dow rose more than 220 points.
Fed Chairman Jerome Powell’s satisfaction with the downward trend in inflation further boosted investor sentiment. A consistent survey conducted by CME’s FedWatch tool found that 85.5% of investors expect the Federal Reserve to maintain current interest rates at its next December meeting.
Fed interest rate increase due to labor market influence
CNN reported that “markets’ focus now is on Friday’s jobs report, which is expected to show solid job growth. According to Refinitiv, analysts expect the economy to add 180,000 jobs in October. The unemployment rate is expected to remain steady at 3.8%.
Yahoo!finance added another perspective.
Thursday’s latest data showed falling prices and a potential easing in the labor market, showing continued strength. According to the Department of Labor, labor costs dropped unexpectedly by 0.8% in the last quarter. Additionally, first-time unemployment claims increased for the second week in a row, reaching 217,000 unemployment claims for the week ending October 28. This represents an increase of 5,000 claims over the previous weeks’ total revised amount.
The recent slowdown in job growth and cooling in U.S. wage pressures may once again reassure Federal Reserve policymakers that the domestic economy is recovering from the aftershocks of the Covid-19 pandemic. This could potentially pave the way for further easing of inflation rates without the need to raise interest rates further.
This understanding was reflected in financial circles after the Department of Labor’s report was released. Last month, the number of non-farm jobs increased by 150,000, marking the third time since December 2020 that the pre-pandemic trend has not been achieved.
This slow pace of job creation, combined with slower growth in hourly wages, may suggest a change in the U.S. economic landscape. The report shows hourly wages rose 4.1% compared to the same period a year ago, the most modest increase since June 2021.
These recent economic trends can be viewed as positive indicators by Federal Reserve policymakers. A slowdown in employment growth and wage pressure could indicate a return to more stable economic conditions after the turmoil caused by the coronavirus pandemic. This could potentially allow inflation to decline consistently without having to resort to further increases in interest rates.
This changing economic outlook could impact the Federal Reserve’s strategies to address the ongoing economic impacts of the pandemic. Policymakers may see this as a sign that the U.S. economy is adapting and returning to a new normal after the disruption the pandemic has brought to the labor market and the broader economy.
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