U.S. stocks rally on ‘Goldilocks’ jobs report as Wall Street’s fear gauge slides
U.S. stocks have swung to an upbeat start in May, with Wall Street’s “fear gauge” easing to its lowest level since the end of March as investor anxieties tied to inflation appeared to subside.
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All three major U.S. equities indexes finished sharply higher Friday — with the S&P 500 SPX and the technology-heavy Nasdaq Composite COMP logging back-to-back weekly gains, while the Dow Jones Industrial Average DJIA climbed a third straight week. The Dow saw its largest weekly rise since the stretch ending March 22, according to Dow Jones Market Data.
Investors on Friday cheered the softer U.S. jobs report for April, viewing it as a “Goldilocks” scenario that may take some heat off inflationary pressures in the economy while setting up the Federal Reserve for potential interest-rate cuts this year, according to Adam Farstrup, head of multi-asset for the Americas at Schroders.
The market has been on “pins and needles” lately — swinging from fears that the Fed might turn hawkish and hike rates to stomp out sticky inflation, to rallying on Friday on signs that inflation may cool enough to prompt a Fed rate cut in 2024, Farstrup said in a phone interview.
The stock market’s fear gauge, the Cboe Volatility Index VIX, fell Friday to 13.49, the lowest level since March 28 — trading back at levels seen before equities slumped in April on inflation fears, according to FactSet data. The index, which trades under the ticker VIX, had jumped last month.
The VIX is trading well below its long-run average of around 20 as the bull market for U.S. stocks has continued after the S&P 500 dropped 4.2% in April, according to FactSet data.
The S&P 500 ended Friday up 7.5% for the year and just 2.4% below its record close on March 28.
Stocks rallied while Treasury yields fell after the April jobs report was released Friday by the U.S. Bureau of Labor Statistics.
The yield on the 10-year Treasury note BX:TMUBMUSD10Y dropped to 4.498% on Friday and logged its biggest weekly decline since December — snapping four straight weeks of increases, based on 3 p.m. Eastern time levels, according to Dow Jones Market Data.
Meanwhile, traders in the federal-funds futures market readjusted their bets on when the Fed may first move to lower its benchmark rate from the current target range of 5.25% to 5.5%.
On Friday, fed-funds futures were pointing to a potential rate cut of 0.25% in September, according to the CME FedWatch Tool. Earlier this week, they had anticipated that the Fed’s first cut might not come until November.
Luke Tilley, chief economist at Wilmington Trust, said by phone Friday that he expects the Fed may begin lowering rates as soon as July. In his view, the April jobs report “fits with an economy that is slowing down but is still strong.”
The markets on Friday appeared once again hopeful that the Fed may succeed in pulling off “a soft landing” for the U.S. economy, according to Schroders’ Farstrup.
“It’s a very hard target to hit,” he said of soft landings. “That’s why they’re so rare.”