The November jobs report and statistics from the University of Michigan consumer survey indicated a robust economy and declining inflation, stoking optimism for a “soft landing” scenario. On Friday, the S&P 500 increased to reach a new high for the year.
With a 0.45% gain, the Nasdaq Composite concluded at 14,403.97, while the S&P 500 gained 0.41% to close at 4,604.37. The Dow Jones Industrial Average closed at 36,247.87, up 130.49 points, or 0.36%.
The S&P 500 recorded its best closing of the year last week, but until Friday afternoon when it crossed 4,609 in afternoon trading, it had not surpassed its July 2023 intraday high. At this point in the year, the benchmark has gained almost 20% and is trading at its best level since going back to March 2022.
By the end of the week, every major average was up. The Dow ended the day slightly higher, and the broad market index increased by 0.2% over that time. With six winning weeks under their belts, both indices had their best run since 2019. The Nasdaq saw 0.7% growth.
The economy “isn’t on the brink of recession,” according to the jobs data, and Michael Arone, chief financial strategist at State Street Global Advisors, believes that a soft landing outcome is supported by a combination of declining inflation expectations and improving consumer mood.
“As long as the soft landing outcome remains intact, the bias for stocks and risk assets remains favourable,” he stated, adding that sentiment will benefit from declining inflation as well as a stronger labour supply-demand balance absent a significant increase in unemployment.
The nonfarm payrolls report for November revealed an unexpected decline in the unemployment rate. In November, the unemployment rate decreased from 3.9% to 3.7%. That was supposed to stay that way. 199,000 new jobs were created by the economy, which is far more than the 150,000 jobs created in October and just above the 190,000 jobs predicted by Dow Jones.
The first worries expressed by the data were that the economy was becoming too hot for inflation to start down sufficiently to allow the Fed to begin reducing its high-rates policy. Given that the Fed’s most recent policy meeting is scheduled for this Wednesday, some traders anticipate that rate cuts may occur as early as next spring.
The idea that the Fed is directing the US economy towards a soft landing—a sustained economic recovery in the face of declining inflation—may, however, also find support in the monthly jobs data. As the economy gained more jobs in November than it did in October, average hourly earnings—which are considered a leading predictor of inflation—rose roughly as predicted.
Source (CNBC)
