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Stocks climb as jobs report miss fuels anticipation of rate cut

U.S. stocks rose after a disappointing report on job gains in May amplified calls for the Federal Reserve to pivot toward easier monetary policy.

The S&P 500 (^GSPC) rose 1.05%, or 29.83 points, as of market close. The Dow (^DJI) rose 1.02%, or 263.48 points, retreating slightly after earlier in the session crossing above 26,000 for the first time since May 10. The Nasdaq (^IXIC) advanced 1.66%, or 126.55 points. The S&P 500 and Dow each rose more than 4% for the week, while the Nasdaq rose 3.9%.

According to the Bureau of Labor Statistics, the U.S. economy added just 75,000 non-farm payrolls in May. This was below expectations for 175,000 non-farm payroll additions, based on Bloomberg-compiled estimates.

[Read more: U.S. economy adds disappointing 75,000 jobs in May]

The previous two months’ payrolls figures were also downwardly revised. April’s change in non-farm payrolls positions was cut to 224,000 from 263,000, and March’s new figure was brought down to 153,000, from the 189,000 seen previously. Following the revisions, job gains averaged 151,000 per month over the past three months.

The unemployment rate held at a 49-year low of 3.6%, matching consensus estimates. The labor force participation also remained unchanged at 62.8%.

Average hourly earnings held at 0.2% month-over-month, versus the slight uptick to a 0.3% pace of gains expected. Average hourly wages rose 3.1% over last year, while consensus economists anticipated that rate to hold at 3.2% from April to May.

Treasury yields fell across the curve, with the yield on the 10-year note (^TNX) down 4.6 basis points to 2.077% Friday afternoon. The three-month yield declined 3.6 basis points to 2.277%, and the two-year yield dropped 3.8 basis points to 1.843%. The U.S. dollar index (DX-Y.NYB) broke below 97 following the jobs report.

The “official” BLS report came on the heels of unexpectedly weak private payrolls results from ADP Research Institute Wednesday. Private payroll additions totaled just 27,000 in May, ADP reported, the slowest pace of gains since 2010.

Weaker-than-expected recent data on the domestic economy – including a purchasing managers’ index at a three-year low in May and a fifth month of declines in home sales in six months – coupled with escalating trade tensions have many investors speculating the Fed will step in to help sustain the current economic expansion. The disappointing payrolls number Friday added fuel to these claims, according to many economists.

“This is the type of read the doves will really take to, as it supports the argument for cutting rates beyond politics or trade issues, which were never part of the Fed’s mandate to begin with,” Mike Loewengart, vice president of investment strategy for E-Trade Financial, wrote in an email. “That said, our historically low unemployment rate hasn’t moved, and even though the number came in low we’re still creating jobs, which supports the case that the economy is still expanding. So the Fed will have to walk a really thin line.”

Earlier this week, Federal Reserve Governor Lael Brainard said that while she does not overly ascribe weight to any one data point on the U.S. economy, she would be monitoring Friday’s jobs report closely.

“I look very carefully at the payrolls number that comes out at the end of this month. I don't tend to take too much signal from one particular data point. I like to put it in context and look over several months and look at that trend line,” Brainard told Yahoo Finance’s Brian Cheung. “But I will be paying very close attention to the payrolls number on Friday.”

As of Friday morning, markets were pricing in a 30.8% probability of a rate cut by the Fed’s June meeting, up about 8 percentage points in the minutes following the Bureau of Labor Statistics’ jobs report. Markets were pricing in a 98.4% of at least one rate cut by the central bank’s December meeting as of Friday afternoon, according to CME Group’s closely monitored FedWatch tool.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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