Relief rally for stocks as markets digest jobless claims data

Stocks staged a relief rally and bonds fell after the latest US labor-market reading helped ease fears about a more pronounced slowdown in the world’s largest economy.

All major groups in the S&P 500 advanced, with the gauge up about 1.5% as data showed US initial jobless claims tumbled the most in nearly a year. As economic angst subsided, Treasuries dropped across the curve and traders further trimmed bets on aggressive Federal Reserve easing in 2024.

Markets have been on a tailspin since last week’s economic data spurred concerns the Fed is waiting too long to cut rates from a two-decade high, jeopardizing prospects for a soft landing. Those jitters combined with stretched positioning, underwhelming tech earnings and poor seasonal trends were among the factors spurring massive volatility around the globe.

To Ian Lyngen at BMO Capital Markets, the jobless claims data is being interpreted as evidence the labor market remains solid.

“Some good news with jobless claims coming in less than expected,” said Chris Zaccarelli at Independent Advisor Alliance. “It’s hard to believe a recession has already begun. We are exercising caution, but think that the panic that started earlier in the month was overblown.”

The S&P 500 rose to around 5,280. The tech-heavy Nasdaq 100 climbed 2%. The Russell 2000 of smaller firms added 1.5%. Nvidia Corp. led gains in tech megacaps. Eli Lilly & Co. soared 13% on a bullish outlook. 

Treasury 10-year yields advanced five basis points to 4%. The dollar was little changed.

Wall Street’s Reaction to Jobless Claims:

• Bret Kenwell at eToro:

Any data which suggests that the Fed isn’t behind the curve in regards to its likely rate-cut in September is welcome news for investors.

The main focus for the labor market will be on the next monthly jobs report in early September. Until then though, weekly jobless claims will likely warrant increased attention from investors. Jobs feed the consumer and consumption is the lifeblood of the US economy. So investors are hoping to see some stabilization in this area.

• Alexandre Baradez at IG:

I see these claims as some kind of respite in contrast to the stress which hit markets last week with the US job data. That being said, I think the upward trend on US unemployment intact. This still opens the door to a Fed rate cut in September.

• Jeff Roach at LPL Financial:

Investors have to be careful not to read too much into one report like they did recently with the last payroll report. A holistic interpretation of the labor market is hiring will likely slow throughout the rest of the year, putting some downside risk to income growth. If the data deteriorate quickly from here, the Fed could take more decisive action in September and cut by a half of a percent, which would provide some salve for markets.

• Chris Larkin at E*Trade from Morgan Stanley:

Today’s jobless claims data may ease some of the concerns raised by last week’s soft jobs report. But with inflation data due out next week and the stock market still working through its biggest pullback of the year, it’s unclear how much this will move the sentiment needle.

• Skyler Weinand at Regan Capital:

While there has been renewed worry about the labor market, we believe it’s overblown. We have had some incredible exogenous shocks to the labor market over the past four years. Lately, we’ve seen a tremendous flow and now ebb in immigration.

While some market participants are pleading with the Fed to either cut early or by 50 basis points or both, the fact is that the US economy is still in a good position and consumer wealth is as high as it’s ever been. There is a strong argument to be made for keeping rates at current levels. Why should the Fed change course now?

• Janet Mui at RBC Brewin Dolphin:

Weekly data tends to be volatile so there is probably not much valuable insight on its own. Today’s data is unlikely to offer the reassurance the markets need.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.5% as of 10:24 a.m. New York time
• The Nasdaq 100 rose 1.9%
• The Dow Jones Industrial Average rose 1.3%
• The Stoxx Europe 600 was little changed
• The MSCI World Index rose 1%
• Bloomberg Magnificent 7 Total Return Index rose 1.9%
• The Russell 2000 Index rose 1.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.3% to $1.0894
• The British pound rose 0.1% to $1.2709
• The Japanese yen fell 0.3% to 147.15 per dollar

Cryptocurrencies

• Bitcoin rose 4.7% to $57,743.13
• Ether rose 4.6% to $2,456.62

Bonds

• The yield on 10-year Treasuries advanced five basis points to 3.99%
• Germany’s 10-year yield was little changed at 2.27%
• Britain’s 10-year yield advanced two basis points to 3.97%

Commodities

• West Texas Intermediate crude rose 0.3% to $75.47 a barrel
• Spot gold rose 1.6% to $2,421.53 an ounce