The US stock market experienced a notable rally on Friday, driven by a robust September jobs report. This positive economic data boosted investor sentiment, leading to gains across major indices.
The Labor Department announced that the US economy added 254,000 jobs in September, surpassing market expectations. This was the largest monthly increase in six months, indicating a resilient labor market.
Additionally, the unemployment rate dropped to 4.1% from 4.2% in August, reinforcing the notion of a strong labor market.
Fed Rate Cut Expectations Shift
While the strong job data suggests a robust economy, it also raises questions about the Federal Reserve’s future monetary policy. Investors are now less likely to anticipate aggressive interest rate cuts, as a strong labor market could prompt the Fed to maintain or even hike rates to curb inflation.
Broad-Based Market Rally
The positive jobs report led to a broad-based rally across major US stock indices. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all closed higher.
Financials and consumer discretionary sectors outperformed, reflecting optimism around the strength of the labor market. These sectors, often more sensitive to economic conditions, benefited from the upbeat sentiment.
Weekly Performance Recap
For the week:
- S&P 500: +0.2%
- Nasdaq Composite: +0.1%
- Dow Jones: +0.1%
Friday’s Closing Levels:
| Index | Close | Change | % Change |
| Dow Jones | 42,352.75 | +341.16 | +0.81% |
| S&P 500 | 5,751.07 | +51.13 | +0.90% |
| Nasdaq Composite | 18,137.85 | +219.38 | +1.22% |
| US 10-Year Yield | 3.967% | ||
| VIX | 19.21 | -1.28 | -6.25% |
Market Sentiment and Fed Outlook
The Friday rally was a positive sign for US investors. It suggests that the economy remain resilient, despite concerns over potential economic headwinds. However, the Federal Reserve’s next steps are still uncertain, and investors will be closely watching future economic data to gauge the central bank’s next steps.
The CME FedWatch Tool now predicts a 0 % chance of a 50-bps cut and a 97.4% chance of a 25-bps at the next meeting. Interestingly, there is a 2.6% chance of no rate cut at all. This could increase if we see a higher print in the next CPI number.
Market Trends: Bulls vs. Bears
Whether the Fed cuts rates or not might not matter if the market continues to rally, as we have seen throughout the year. Despite earlier calls for 7 rate cuts, the S&P still reached all-time highs without them.
The market appears determined to push higher, although there are signs of exhaustion. Friday’s price action reflected a battle between bulls and bears, with the bulls eventually gaining the upper hand. However, the fact that the blowout jobs report didn’t propel the S&P to new all-time highs could signal either fatigue in the market or caution around geopolitical risks, particularly in the Middle East.
Looking Ahead: Volatility on the Horizon
With the CPI report coming this week and the start of earnings season, we can expect increased volatility. If the bulls fail to drive the market to new highs soon, the bears might take the opportunity to force some profit-taking and test the downside.
Source: CBOE, Bloomberg
This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable US bank exceeding 20 years.
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