Stocks are poised for significant gains this week as investors grow optimistic that the Federal Reserve’s rate increases are coming to an end. The Dow Jones Industrial Average is up 4.4%, putting it on track for its best performance since October 2022. The S&P 500 and the Nasdaq are also on pace for their best weeks since November of last year.
On Friday, stock futures increased after a weak jobs report led to a decrease in bond yields. This capped off the stock market’s best week in 2023. The October jobs report suggested that the Fed’s efforts to cool the economy and control inflation may be working, as job growth came in below expectations.
The U.S. economy added 150,000 jobs in October, falling short of the consensus estimate of 170,000 and lower than September’s 297,000. Furthermore, the unemployment rate increased to 3.9% from the expected 3.8%. Average hourly earnings also fell short of expectations, with a 0.2% increase in October compared to the anticipated 0.3%.
These disappointing jobs figures eased concerns about inflation and interest rates for the equity market. Bond yields, which have been weighing on the stock market for the past three months, dropped significantly after the weak jobs report and lower average hourly earnings. The 10-year Treasury yield decreased over 9 basis points to 4.57%, down from its recent high of 5%. The 2-year Treasury yield also fell 7 basis points to 4.9%.
It’s important to note that bond yields and prices move in opposite directions, and one basis point equals 0.01%. The decrease in bond yields is seen as a positive sign for stocks, as it indicates lower borrowing costs for companies and may attract investors seeking higher returns.
Overall, this week’s market performance indicates a growing belief among investors that the Fed’s tightening cycle is nearing its end. As a result, stocks are seeing significant gains, and concerns about inflation and interest rates are starting to ease.
