Stocks rise after August jobs report

US stocks rallied on Friday after an interim August jobs report renewed some optimism among investors that a more modest 0.50% rate hike could come from the Fed later this month.

Around 11:20 am ET, all three major indexes were up more than 1%, with the S&P 500 and Nasdaq both rallying 1.1%.

That jump follows a volatile trading session on Thursday that saw all three major indexes sink before paring losses, with the S&P 500 and Dow ending September’s first session in the green.

Labor Department data released Friday morning showed nonfarm payrolls rose by 315,000 in August, while the unemployment rate rose to 3.7 percent.

Economists had expected job gains to total 298,000 with the unemployment rate expected to remain at 3.5%.

Wage gains moderated somewhat last month, with average hourly earnings rising 0.3% month-on-month and 5.2% from a year earlier. Both readings were 0.1% below expectations.

The biggest highlight of Friday’s jobs data, however, was the increase in participation, with 786,000 Americans entering the labor force last month and pushing the labor force participation rate to 62.4%, the highest since in March 2020.

Investors were laser-focused on Friday’s data after Fed Chairman Jerome Powell said in an aggressive speech at the Jackson Hole symposium last week that he was willing to accept weaker labor conditions in exchange for lower rates.

“The slower pace of payroll gains in August, along with a strong recovery in the labor force and more modest wage growth, appear to favor a smaller 50 basis point rate hike from the Fed next month, rather than a 75 basis points, but officials will place much more weight on August CPI data due next week,” Michael Pearce, senior U.S. economist at Capital Economics, wrote in a note on Friday.

In addition to the stock market rally, the dollar weakened on Friday – a positive for risk assets – while bond yields moderated after a sharp rise earlier this week. The 10-year yield was near 3.21% in late morning trade, down from highs of around 3.27% earlier this week.

NEW YORK, NEW YORK - SEPTEMBER 01: Traders work on the floor of the New York Stock Exchange (NYSE) on September 1, 2022 in New York City.  Stocks rose late in the afternoon on the first day of September as investors awaited Friday's jobs report.  (Photo by Spencer Platt/Getty Images)

Traders work at the New York Stock Exchange (NYSE) on September 1, 2022 in New York City. Stocks rose late in the afternoon on the first day of September as investors awaited Friday’s jobs report. (Photo by Spencer Platt/Getty Images)

Shares of Lululemon ( LULU ) rose more than 11% in early trading after the sportswear retailer reported quarterly earnings that beat Wall Street estimates. The company also raised full-year profit and revenue guidance above analysts’ forecasts as wealthy customers snap up its new accessory offerings.

Shares of Broadcom ( AVGO ) also rose Friday morning after the chipmaker reported a strong sales outlook for the current quarter, allaying fears of a slowdown in chip demand.

While some better economic data this season has helped boost sentiment, many strategists have recently been sounding the alarm about looming earnings weakness.

According to Morgan Stanley’s Mike Wilson, while the first half of the year was dictated by Federal Reserve policy and tighter economic conditions, the second half will be determined by earnings expectations for next year.

“As a result, equity investors should be laser-focused on this risk, not the Fed, particularly as we enter the seasonally weaker period of the year for earnings revisions and inflation further erodes margins and demand,” Wilson said .

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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