Wall Street rallies as debt ceiling fiasco resolves and job numbers exceed expectations

MANHATTAN (CN) — The bulls rallied on Friday as a blockbuster jobs report and the passage of the debt ceiling bill propelled equities forward.

Gains and losses were meager earlier in the week — but following massive employment data released on Friday, all U.S. three indices rallied. By the closing bell, the Dow Jones Industrial Average had gained 669 points, while the S&P 500 had increased 77 points and the Nasdaq by 265 points.  

Wall Street was also happy with an eleventh-hour debt ceiling deal reached earlier this week, as were key members of the business community.

“By agreeing to lift our nation’s debt ceiling and use this opportunity to control spending, the President and Congress averted an economic catastrophe while also laying the groundwork for more responsible fiscal policy moving forward,” U.S. Chamber of Commerce CEO Suzanne Clark said in a statement.

Friday’s job report by the U.S. Bureau of Labor Statistics showed a surge in hiring last month, with the U.S. economy adding 339,000 jobs, about 145,000 more than most analysts forecasted.

Wages also increased, but only by 4.3% compared with a year ago.

The report is only the latest to exceed expectations. Experts have underestimated BLS employment numbers for 14 of the last 17 months, showing the stubborn resilience of the economy despite inflationary headwinds.

It was not all positive, however. Average weekly hours dropped slightly to 34.3 — a three-year low — and the unemployment rate increased by 0.3% to 3.7%.

The latter data point might give the Federal Reserve justification for a pause in interest rates later this month — though the still-hot jobs market hasn’t helped the central bank’s efforts to restrain inflation.

Members of the Fed are publicly split on what the central bank’s next move may be. Philadelphia Federal Reserve President Patrick Harker said on Thursday it was "time to hit the stop button for one meeting and see how it goes." Federal Reserve Governor Philip Jefferson suggested the Fed should skip a rate hike at its coming meeting, while Federal Reserve Bank of Cleveland President Loretta Mester told The Financial Times this week she doesn’t “really see a compelling reason to pause” rate hikes.

“The Fed is being pushed into a corner,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance. While the central bank’s interest rate hikes have been swift and dramatic, “the stock market seems unstoppable, the job market is very strong, and inflation is down from the highs but doesn’t appear to be on a sustainable path to their 2% target.”

Even a 3.7% unemployment rate “could the result of even more people looking for work," Zaccarelli added, "which could be seen as a sign of confidence in the opportunities that are out there and not necessarily a sign of actual weakness in the economy.”

The job openings report by the Bureau of Labor Statistics, known as the JOLTS report, also surprised investors earlier this week. It showed employment opportunities had increased by 348,000 in April, reducing some of the decline seen earlier this year.

Experts at Oxford Economics originally said the JOLTS survey and robust labor market would rule out further rate cuts by the Fed until 2024. Following the gangbusters jobs report on Friday, though, Oxford Economics Chief U.S. Economist Ryan Sweet wrote that while rates will likely remain unchanged this year, investors can expect further cuts next year.

“The new forecast for the [federal funds interest] rate in 2024 will include a 25-basis point cut at every other meeting during the first half, followed by a 25-basis point cut at each subsequent meeting until the fed funds rate returns to our estimate of the neutral rate of 2%,” Sweet wrote in an investor’s note. He added: “The Federal Reserve isn’t close to declaring victory on taming inflation."

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