Wall Street Close: Stocks recover as strong jobs data brightens economic outlook

  • It was a solid finish to the week, with stocks recovering as strong US jobs data brightened the economic outlook.
  • The S&P 500 managed to recover from 3730 lows back towards 3850 and closed in the green for the week.

It was a strong finish to the week for US equity markets, which surged higher after a tough three days. The S&P 500 finished the day 2.0% higher to close near 3850, a more than 3.0% rally from intra-day lows around the 3730 mark. The Nasdaq 100 finished the session up 1.6% to close in the 12600s, bouncing roughly 3.7% from intra-day lows around 12200. The Dow ended the session up 1.85%, close the 31500 mark. The CBOE volatility index dropped nearly 4 points, taking it back into the 24.00s.

In terms of the sectoral performance; the S&P 500 energy sector again faired the best amid further crude oil market upside (WTI surged $2.50 to end the week at multi-year highs above $66.00), closing the session 3.1% higher. Meanwhile, the Consumer Discretionary sector was the underperformer, gaining just 0.7% on the day and dragged to the bottom of the sectoral performance board by continued underperformance in Tesla shares, which cratered another 3.8% on Friday.

Friday’s recovery meant that the S&P 500 managed to close the weak in the green, up 0.8%. The Dow ended the week 1.8% higher, while the Nasdaq 100 still ended the week 1.9% lower, though is at least now just 8.8% down from recent highs, meaning that it is no longer classed as being in “correction” territory.

Stock Market Reaction to US Jobs Report

In the first few hours following the release of a much stronger than anticipated US Labour Market survey, stocks were choppy and indecisive. Some desks had argued that a strong jobs report would exacerbate fears about the US economy overheating and the Fed being forced to step in to curb inflation by raising rates or tapering their asset purchase programme sooner than currently priced by markets. There were also fears that a much stronger than expected report would trigger a further surge in US bond yields, itself a negative for equity markets (and particularly negative for high price-to-earnings ratio stocks, like Big Tech).

The fact that US bond yields did not surge in wake of the data (well, they did but the move higher was only very fleeting, and yields are back to broadly flat on the day) seemed to set the stage for equities to stage a bit of a recovery. Indeed, Friday’s jobs data strengthens the idea that the US is on course for a very strong economic recovery.

Meanwhile, it is worth remembering that while stocks have been under pressure in recent weeks amid fears about higher long-term interest rates, inflation and a Fed that has not come across as dovish as the market had hopes, the US economic outlook has unequivocally brightened; 1) as Covid-19 infection rates in the country have dropped the easing of Covid-19 restrictions has accelerated, 2) the vaccine rollout has accelerated and 3) Congress remains on course to pass US President Joe Biden’s $1.9T stimulus bill into law by mid-March and hopes for a follow-up multi-trillion-dollar infrastructure-focused spending bill are high. All of these positives bode very well for earnings growth.

US Labour Market Data Review

The US economy added 379K jobs in February, well above expectations for the economy to have added 182K. But the labour market performed better than the headline NFP number suggests; the private service sector 513K jobs as the easing of economic restrictions allowed hospitality, retail and leisure sector-related jobs to return. Meanwhile, the manufacturing sector added 21K jobs, but construction saw 61K in job losses as a result of bad weather. Moreover, local and state government employment dropped by 69K, a trend most desks expect not to continue, particularly with further fiscal stimulus incoming.

Had February not seen freak weather conditions in much of the country and had government jobs not surprisingly fallen, markets might easily have been looking at a +500K job gain. Assuming that conditions in the US economy continue to improve in March; i.e. lockdown restrictions continue to ease as the prevalence of Covid-19 drops and the vaccine rollout continues, further large gains should be expected to continue. These employment gains might accelerate from April as the economic tailwind from US President Joe Biden’s $1.9T stimulus bills kicks in (assuming it gets passed into law by mid-March and stimulus cheques are sent out within a few weeks).

The US unemployment rate dropped to 6.2% unexpectedly (consensus forecasts were for the unemployment rate to remain unchanged at 6.3%), as the gain in employment outpaced the rate at which workers returned to the workforce. The participation rate remained unchanged at 61.4% (but actually was down about 50K). Total employment levels are still about 9.5M below their pre-Covid-19 levels in the US. Even if the rate of job gains does pick up to about half a million new jobs per month (which would probably be an over-optimistic forecast), that implies it is still going to take into 2023 before the US economy reaches full employment.

That means the Fed will (inflation permitting) continue to sit on its hands with regards to interest rates. Indeed, the Fed may even be targeting an unemployment rate of below pre-Covid-19 levels given recent rhetoric on how it seeks to create “inclusive” full-employment; that likely means that, say, if White unemployment is at 2.5% but minority unemployment remains at say 6% (implying a national unemployment rate of say 3.5%), this would still not constitute full employment for the Fed. In other words, they are taking a more dovish interpretation of their full-employment mandate than they ever have before.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Get Weekly Crypto trade ideas!  
Empower yourself with the best market insights

Join FXStreet Premium!    

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD attempts recovery above 1.1950 as USD resumes decline

EUR/USD is attempting a recovery above 1.1950 ahead of the European open, as the US dollar’s rebound falters amid persistent weakness in the Treasury yields. Easing concerns over EU's covid vaccines rollout and dovish Fed expectations underpin the spot.


GBP/USD recaptures 1.3850 as UK’s optimism offsets USD bounce

GBP/USD rises above 1.3850, picking up fresh bids heading into the London open. The cheers the UK’s advantage of faster vaccinations and unlock guidelines to shrug off the US dollar’s bounce off late the lowest since late March.


XAU/USD buyers attack six-week-old resistance line around $1,780

Gold keeps recovery moves from intraday low to print mild gains, picks up bids off-late. Ascending resistance line from early March tests bulls. 50-day SMA, monthly support line could offer bounces in case of pullback, any further weakness will recall the bears.

Gold News

Bitcoin network hash rate drop may not have caused BTC price crash

China’s prominent regions for Bitcoin mining have suffered an electrical grid blackout, causing Bitcoin’s hash rate to decline. Bitcoin price crashed over the weekend, coinciding with the drop of the network’s hash rate.

Read more

S&P 500 Week Ahead: Banks beat the street, COIN booms as funds flow to ETFs

Equity markets continue to remain bolstered from all sides as the macro environment produces strong numbers, earnings continue to smash estimates and inflation concerns take a back seat. Earnings season switches from bank stocks to reopening plays.

Read more