Wall Street’s major equity indexes charged higher on Friday, as sharply slowing job numbers raised hopes for the Fed to move ahead with a cut in interest rates, while optimism about potential trade fight progress on the China and Mexico fronts added to risk appetites.
The Street appeared willing to bet that labor market weakness would give the Fed a reason to provide the economy with more support, pushing the S&P 500 and the Dow to their largest weekly gains since November’s massive year-end sell-off.
A Labor Department report showed nonfarm payrolls increased by 75,000 jobs last month, much smaller than the 185,000 additions estimated by economists in a Reuters poll, suggesting the loss of momentum in economic activity was spreading to the labor market. As a result, traders raised bets for a rate cut in July followed by two more rate cuts by year-end.
Also adding to investor enthusiasm on Friday was a notice granting Chinese exporters two more weeks to get their products to the United States before raising tariffs on those items. U.S. and Chinese leaders are expected to meet late in June at the G20 meeting.
But while Trump said there was a “good chance” of a US-Mexico trade deal, if the two countries fail to agree, Trump plans to impose a 5% tariff on Mexican imports on Monday.
Mexican sources told Reuters late Friday that negotiators are battling to reach agreement over a U.S. demand that Mexico accept more asylum seekers.
The S&P’s largest gains came from Microsoft, Apple and Amazon.
Technology stocks, among the hardest hit due to the recent escalation in trade tensions, rose 2% and provided the largest improvement of the S&P 500’s 11 major sectors. Chipmakers, which get a major portion of their revenue from China, also gained, with the Philadelphia chip index rising 1.2%. However, tariff-sensitive industrials underperformed slightly with a 0.9% gain.
Interest-rate sensitive bank stocks dropped 0.98%. The only major S&P sectors in the red were the broader financial index, down 0.19%, and a defensive favorite, utilities, which fell 0.77%.
Beyond Meat Inc shares closed up 39.4% at $138.65 after the maker of plant-based burgers said it expects to more than double its revenue and report breakeven EBITDA this year. It went public at $25 on May 2.
Approximately 6.48 billion shares changed hands on the major domestic equity exchanges, as compared to the 7.04 billion share average for the past 20 trading days.
Job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the labor market, which could put pressure on the Federal Reserve to cut interest rates this year.
The broad cool-off in hiring reported by the Labor Department on Friday was even before a recent escalation in trade tensions between the United States and two of its major trading partners, China and Mexico. Those the trade fights could undermine the economy, which will celebrate 10 years of expansion next month, the longest on record.
Adding a sting to the closely watched employment report, the economy created far fewer jobs in March and April than previously reported.
Nonfarm payrolls increased by 75,000 jobs last month, the government, falling below the roughly 100,000 needed per month to keep up with growth in the working-age population.
May’s disappointing job growth was flagged by a report on Wednesday from payrolls processing firm ADP showing the smallest gain in private payrolls in nine years last month. Another report this week showed a drop in online ads by businesses looking for help.
Last month’s slowdown in job gains, however, probably understates the health of the labor market as measures such as weekly applications for unemployment benefits and the Institute for Supply Management’s services employment gauge have suggested underlying strength.
Some of the weakness in hiring last month could be the result of worker shortages, especially in the construction, transportation and manufacturing sectors.
Monthly wage growth remained moderate in May, with average hourly earnings increasing six cents, or 0.2% following a similar gain in April. That lowered the annual increase in wages to 3.1% from 3.2% in April. The average workweek was unchanged at 34.4 hours last month.
The moderation in wage gains, if sustained, could cast doubts on the Fed’s optimism that inflation would return to the U.S. central bank’s 2% target.
The tepid employment report added to soft data on consumer spending, business investment, manufacturing and homes sales in suggesting the economy was losing momentum in the second quarter following a temporary boost from exports, inventory accumulation and defense spending. Growth is cooling as the massive stimulus from last year’s tax cuts and spending increases fades.
The Atlanta Fed is forecasting gross domestic product rising at a 1.5% annualized rate in the second quarter. The economy grew at a 3.1% pace in the first quarter.
The unemployment rate remained near a 50-year low of 3.6% in May. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dropped two-tenths of a percentage point to 7.1% last month, the lowest since December 2000.
The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was unchanged at 62.8% last month.
Hiring slowed across all sectors in May. Manufacturing payrolls increased by 3,000 last month, after gaining 5,000 positions in April. The sector is struggling with an inventory overhang that has resulted in businesses placing fewer orders at factories.
Manufacturing payrolls will be watched closely for signs of any fallout from the trade tensions. Factory output has weakened, and sentiment dropped to a 31-month low in May, with manufacturers worried mostly about trade.
Employers in the construction sector hired 4,000 workers in May after adding 30,000 jobs to payrolls in April. Leisure and hospitality sector payrolls increased by 26,000 jobs last month.
Professional and business services employment rose by 33,000. Transportation and warehousing payrolls fell as did retail employment. Government shed 15,000 jobs, the most since January 2018.