Wall Street scaled new highs on Friday, with the S&P closing up for a seventh straight day, after jobs data for June showed robust hiring yet persistent weakness in the labor market that will keep the Federal Reserve from raising interest rates any time soon.
The S&P, Dow and Nasdaq hit records.
The Labor Department’s employment report showed nonfarm payrolls increased by 850,000 jobs last month, but the total is 6.8 million below its peak in February 2020.
The better-than-expected data was a tentative sign that a labor shortage overhanging the U.S. economy was starting to ease but was not enough to force the Fed to raise rates.
Big tech led stocks on Wall Street higher while the yield on the benchmark 10-year U.S. Treasury note slid to 1.431%.
“For capital markets, equities and bonds, this was a goldilocks report,” said Darrell Cronk, chief investment officer at Wells Fargo Wealth & Investment Management. “There were enough jobs that you’d want to see, but not so much that it concerns people that the Fed may have to act sooner.”
Investors have feared a stronger-than-expected recovery and the prospect of surging inflation that could force the Fed to pare its support and raise rates, hurting technology shares whose growth and cash flow is farther in the future.
Microsoft Corp added the most to the S&P’s broad advance, followed by Apple Inc, Amazon.com Inc and Google parent Alphabet Inc. Financial stocks, which earn less on lower rates, fell as did utilities.
The Dow Jones Industrial Average rose 152.82 points, or 0.44%, to 34,786.35, the S&P 500 gained 32.4 points, or 0.75%, to 4,352.34 and the Nasdaq Composite added 116.95 points, or 0.81%, to 14,639.33.
For the week, the S&P rose 1.7%, the Dow added 1.0%, the nasdaq gained 1.9%.
In Toronto, the S&P/TSX composite index was up 60.53 points, or 0.3%, at 20,226.11.
The Consumer staples sector lead gains, rising 1.3%, as Alimentation Couche-Tard Inc. jumped 2.8% and Empire Company Ltd. finished 2.4% higher.
The heavyweight energy sector finished flat, up just 0.02% on the day, while materials gained 0.4%.
The Canadian dollar rallied against its U.S. counterpart on Friday, as the greenback gave back some recent gains and investors looked for Canada’s jobs report next week to support further reduction of stimulus by the Bank of Canada.
The loonie was trading 0.9% higher at 1.2320 to the greenback, or 81.17 U.S. cents, its biggest advance since May 6.
Earlier, the currency touched its weakest level since June 21 at 1.2449. For the week, it was down 0.2%.
The U.S. dollar dropped from a three-month high against a basket of major currencies after the U.S. nonfarm payrolls report for June showed a strong jobs gain but some weak details. The greenback had rallied this week on expectations for a strong report.
“I think the (U.S.) dollar was technically overextended,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. “It was vulnerable to buy the rumor, sell the fact.”
Canada’s employment report for June is due next Friday. Analysts expect jobs to rebound after two months of declines, helped by easing of economic restrictions to curb the COVID-19 pandemic.
That could see the Bank of Canada cutting its bond purchases again at the July 14 interest rate announcement, Chandler said.
In April, the BoC became the first major central bank to reduce pandemic support. The BoC’s more hawkish stance and higher oil prices will help the loonie strengthen over the coming year but gains could stop short of the recent six-year high near 1.20, a Reuters poll showed.
Canada posted a trade deficit of $1.4-billion in May, as imports increased and exports fell. Separate data showed Canadian factory activity for June growing at the slowest pace in four months.
Investors have feared a stronger-than-expected recovery and the prospect of surging inflation that could force the Fed to pare its support and raise rates, hurting technology shares whose growth and cash flow is farther in the future.
Microsoft Corp, Apple Inc, Amazon.com Inc and Google parent Alphabet Inc led the rally, while financial stocks, which earn less on lower rates, fell.
Headwinds that have weighed on hiring, including jobless benefits and vaccine concerns, are likely to diminish in the fall and might help jobs growth accelerate, said David Joy, chief market strategist at Ameriprise Financial.
“But for now, the recovery in the labor market is not so robust as to bring forward any further the Fed’s eventual tightening,” Joy said.
Focus now also shifts towards the second-quarter earnings season and progress on President Joe Biden’s infrastructure bill that could help the equity market keep the momentum.
Investors will look to minutes from the Fed’s June meeting next week for the latest view on inflation, bond tapering and rates at a time when the easy monetary stance appears to be at an inflection point amid a booming U.S. economy.
Trading volumes were expected to be light heading into the long weekend, with markets shut on Monday in observance of Independence Day.
The MSCI All Country World index gained 0.31%, while the pan-European STOXX 600 index rose 0.26%.
Still, gold edged higher, after having jumped by much as 1% earlier in the session, on a weakened dollar as investors weighed prospects that Fed policy would tighten following the jobs report.
The dollar slipped from a three-month high, weighed down by some of the weaker details of the U.S. nonfarm payrolls report.
U.S. employment remains about 6.8 million jobs below its peak in February 2020. There are a record 9.3 million job openings.
The dollar index fell 0.161 point, or 0.17%, to 92.436.
The Japanese yen was last down 0.24%, at $111.2300.
While the prospects of a strong economic recovery underpin equity markets, investors remain nervous that a sharp recovery from the pandemic could boost inflation to an uncomfortable level for the Fed.
Former U.S. Treasury Secretary Lawrence Summers has said massive U.S. fiscal spending will set off inflationary pressures of a kind not seen in a generation. But others argue that until wage pressures return in force, talk about a return to 1970s-style inflation is just that.
Spot gold prices rose $4.71 or 0.27%, to $1,781.31 an ounce.
Oil prices edged lower after OPEC+ ministers delayed an output policy meeting, with sources saying the United Arab Emirates had balked at proposals that included raising supply by 2 million barrels per day by the end of the year.
Brent crude was last up $0.04, or up 0.05%, at $75.88 a barrel. U.S. crude was last down $0.36, or down 0.48%, at $74.87 per barrel.
Reuters
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