U.S. stock benchmarks gained solidly Friday morning, after the May nonfarm-payrolls report showed a less-than-expected gain, leading investors to bet that the Federal Reserve will maintain its easy-money policies for longer.
How is the stock market performing?
On Thursday, the Dow closed down 23.34 points, or 0.1%, at 34,577.04, snapping a five-day win streak. The S&P 500 stumbled 15.27 points, or 0.4%, to 4,192.85, while the Nasdaq Composite declined 141.82 points, or 1%, to 13,614.51.
For the week, the Dow was headed for a weekly rise of 0.5%, the S&P 500 was on track for a gain of 0.3%, while the Nasdaq was set for ra decline of 0.3%, FactSet data show.
What’s driving the market?
May’s employment report from the U.S. Labor Department showed that the U.S. created 559,000 jobs, falling short of The Wall Street consensus estimate for a gain of 671,000, based on a poll of economists by Dow Jones and The Wall Street Journal.
The unemployment rate fell to 5.8% from 6.1%, compared with estimates of a dip to 5.9%. The official rate probably understates the true level of joblessness by 2 to 3 percentage points, economists say, but it is falling steadily.
The May report, however, will likely be interpreted as bullish for the market overall, if it leads the Fed to delay removing its pandemic-era monetary support, including the $120 billion a month asset-purchase plan.
“There is no doubt that we are going to see a lot of bounce around in this numbers as people continue to leave and come,” wrote Naeem Aslam, chief market analyst at AvaTrade, in a note after the NFP release.
“While the job gains were somewhat modest relative to expectations, the good news is the figure rebounded from last month’s disappointing miss,” wrote Charlie Ripley, senior investment strategist for Allianz Investment Management, in emailed comments.
The May report also showed that many companies have increased wages to lure workers. Average hourly pay rose 15 cents, or 0.2%, to $30.33 an hour last month. The labor-force participation rate, another closely watched metric, edged lower to 61.6%.
Ripley said that with the labor-force participation rate ticking lower “it appears like employers may need to offer up more incentives to entice workers to fill the record number of job openings that are out there.”
“Overall, today’s report does provide progress in the right direction, but it also raises uncertainty around the inflation debate with wage pressures beginning to creep into the labor market,” the Allianz said.
The government data come after April data showed that just 266,000 new jobs were created on a seasonally adjusted basis, significantly missing economists’ forecast that had come in on average at around 1 million.
Last month’s weaker-than-expected payrolls increase forced economists to revisit their predictions, leading Aneta Markowska, chief economist with Jefferies Financial Group, to say that she was uneasy with her own forecast after her bold 2.1 million forecast for April badly missed, as did most other estimates.
“This is probably the least conviction I’ve had on a payrolls forecast in my entire career,” she acknowledged. Jefferies’ best guess for May jobs this time around was 450,000.
The nonfarm payrolls data also follow a reading of private-sector employment from Automatic Data Processing on Thursday, which reported a 978,000 increase in jobs created in May. However, the ADP reports haven’t always aligned with the more closely watched government report.
On Thursday, U.S. stock indexes ended down and the Dow halted a five-session win streak after upbeat economic data helped push up U.S. Treasury yields which in turn weighed on technology and other growth-oriented stocks that are more sensitive to rising interest rates.
Investors were also keeping one eye on discussions around an infrastructure spending proposal, after President Biden signaled that his administration would be willing to make concessions on corporate taxes to forge a deal.