Stocks rally after jobs data undercuts rates

Stocks rallied to more records Friday on Wall Street as a stunningly disappointing report on the nation’s job market signaled to investors that interest rates will likely stay low.

Technology companies accounted for a big share of the broad rally, which included solid gains by stocks in the energy, industrial, and consumer discretionary sectors. The gains helped the S&P 500 notch its eighth weekly gain in the last 10 weeks.

Voices up and down Wall Street acknowledged that Friday morning’s jobs report was a massive disappointment.

It’s usually the market’s most anticipated economic data of each month, and it showed employers added just 266,000 jobs in April. That was far fewer than the 975,000 jobs that economists expected and a steep slowdown from March’s hiring pace of 770,000.

“It was a bit of a shock when that headline number hit, but you realize most of, if not all of it, is the result not necessarily of demand, but supply,“said Peter Essele, head of portfolio management for Commonwealth Financial Network. ”There seems to be a bit of a labor shortage at the moment.“

The weak report jolted the bond market and initially sent yields tumbling. The yield on the 10-year Treasury briefly dropped below 1.49 percent, toward its lowest level in two months before recovering. By the market’s close it was unchanged from 1.56 percent late Thursday.

Many analysts said they don’t want to put too much emphasis on just one month of discouraging data. They still expect the economy to strengthen mightily as coronavirus vaccinations roll out. The weak jobs number also bolsters the case for the Federal Reserve to keep interest rates low in hopes of boosting the jobs market.

Low rates have been a huge reason for the stock market’s recovery from its pandemic low in March 2020. One of the market’s biggest fears in recent months has been that a supercharged economy could lead to higher, persistent inflation and force the Federal Reserve to raise rates. The central bank has been holding short-term rates at a record low and buying $120 billion in bonds every month.

After Friday morning’s jobs report, investors pared back bets that the Federal Reserve will raise rates soon. Now they see just a 7 percent chance of an increase in the federal funds rate by the end of the year, down from the 15 percent probability they were seeing a month ago, according to CME Group.