Markets closed sharply higher on Friday after the release of weaker-than-expected jobs report gave rise to speculations that there might be a rate cut by the Fed at the end of its next meeting this month. Weak job additions shed light on weakness in the U.S. economy and strengthened the argument supporting a rate cut.
Meanwhile, there were some positive developments on the trade war front between the United States and Mexico. The three major benchmarks ended in the green and posted best weekly gains since late last year.
The Dow Jones Industrial Average (DJI) increased 1%, to close at 25,983.94. The S&P 500 increased 1.1% to close at 2,873.34. The tech-laden Nasdaq Composite Index closed at 7,742.1, gaining 1.7%. The fear-gauge CBOE Volatility Index (VIX) increased 1.2% to close at 16.12. Advancers outnumbered decliners on the NYSE by a 3.41-to-1 ratio. On Nasdaq, a 1.98-to-1 ratio favored advancing issues.
How Did the Benchmarks Perform?
The Dow rose 263.3 points to close in the green. Gains for the 30-stock index were broad based and was supported by a rally in the shares of Microsoft MSFT and Apple AAPL, which gained 2.8% and 2.7%, respectively. While Microsoft carries a Zacks Rank #2 (Buy), Apple has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The S&P 500 gained 29.6 points to end in positive territory. Of the 11 major sectors of the S&P 500, nine ended in green, with communication services and technology stocks leading the advancers. The Communication Services Select Sector SPDR Fund (XLC) and Technology Select Sector SPDR Fund (XLK) increased 1.6% and 1.9%, respectively on Friday.
Meanwhile, the Nasdaq increased 126.7 points to close in the green. Shares of Amazon AMZN rallied 2.8% and supported gains for the Nasdaq.
Investors Rejoiced Weak Jobs Data
Per the latest report from the Bureau of Labor Statistics (BLS), the U.S. economy added only 75,000 jobs in the month of May. The metric came in well below the consensus estimate of 185,000 jobs in the month. Furthermore, job additions for both March and April were revised down by a total of 75,000. Meanwhile, U.S. unemployment rate remained at a 49-year low and came in at 3.6% for the month of May.
Such lackluster jobs data points toward weakness in the U.S. economy and gave rise to speculations that the Fed might announce a rate cut in its next meeting scheduled for Jun 18-19.
Investors anticipated that underlying weakness in the U.S. economy coupled with trade war woes would influence Fed’s decision to slash benchmark interest rates in the near term. This led to broad-based gains for the markets. Per the CME FedWatch Tool, there is 20.8% probability of a rate cut by the Fed.
U.S.- Mexico “Make Progress” Toward a Trade Deal
There were reports of positive developments on the trade war front between the United States and Mexico on Jun 6. Mexico agreed to make sure that it would check the influx of illegal immigrants from the Central American country to the United States. In return, Mexico wants the United States to not impose tariffs on imports from the country.
Mexico also stressed on the country’s requirement for more economic aids from America to support economic growth in the country and thereby a reduction in immigration to the United States. President Donald Trump tweeted on Friday afternoon that there was a good chance of reaching a trade deal with Mexico.
On the economic data front, the U.S. Department of Commerce reported that wholesale inventories for the month of April increased 0.8%, higher than the consensus estimate of 0.6%.
For the week, the Dow, the S&P 500 and the Nasdaq surged 4.7%, 4.4% and 3.9%, respectively. While this marked the best weekly gain since November for both the Dow and the S&P 500, Nasdaq charted its best weekly rise since Dec 28.
Investors grew more optimistic about a possible solution to the U.S.-Mexico trade conflict. Moreover, reports emerged that the Trump administration was likely to delay imposing tariffs on Mexico. Meanwhile, Fed Chairman Jerome Powell signaled reduction in benchmark interest rate this year.
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