Stocks Rally on Jobs, Fed – Will it Last?

Chart of Vanguard Total Stock Market ETF (VTI)
Chart of Vanguard Total Stock Market ETF (VTI) – Source: TradingView

Markets received a double dose of good news on Friday morning. This prompted strong relief rallies across the major indexes. From the Dow and S&P 500 to the Nasdaq Composite and Russell 2000 small-caps, stocks surged sharply. In the process, markets erased Thursday’s losses and extended the rebound from December’s lows. The chart above shows the Vanguard Total Stock Market ETF (VTI) and the strong rally for stocks on Friday.

U.S. Jobs Far Exceed Expectations

Before Friday’s market open, all eyes were on the U.S. government jobs report. And the data did not disappoint. The headline non-farm payrolls for December far surpassed expectations, pointing to continued strength in the U.S. job market. This outcome more than made up for the lower than expected numbers from November.

The U.S. economy added a whopping 312,000 jobs in December, far exceeding previous forecasts for around 180,000 jobs. Wages also grew more than expected at 0.4% month-over-month. Only the unemployment rate was worse than expected at 3.9% – a rise of 0.2% from the previous month. But a 0.2% rise in the labor force participation rate to 63.1% mitigated the rise in unemployment.

Signs of slowing global economic growth have weighed on equity markets of late, but Friday’s strong showing for U.S. jobs has given the markets some respite from recently heightened volatility and pressure.

Fed is ‘Patient’

Another bullish development for investors happened shortly after the jobs report. Fed Chair Jerome Powell said in a panel discussion that the Fed would be “patient” and that “there is no preset path” in raising interest rates or adjusting the balance sheet. This gave investors even further confidence that, despite the strong jobs report, the Fed would unlikely be overzealous in hiking rates.

Why Did Stocks Rally?

The monthly U.S. jobs report and any significant comments from the Fed are major market events that are among the most widely watched by investors. Generally, markets really like solid job creation because it signifies a strong and growing economy. But what they don’t like is when good economic data results in higher interest rates from the Fed. Markets generally prefer lower interest rate environments. On Friday, investors got the best of both worlds with a highly positive economic signal along with a patient Fed. With this double dose of good news, the markets would be hard-pressed NOT to rally.

What Might Be Next?

For the time being, markets may be rejoicing about good jobs and a cooperative Fed. However there are still many concerns on the table. The U.S. government is still in a partial shutdown, and trade war tensions haven’t gone away. If it’s neither of these factors, something else is bound to shake the markets during these still-volatile times. But at least we have some evidence from the stellar jobs report that the U.S. economy may be better off than feared. This alone could extend the rebound and prolong the rally for stocks.


IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Past performance is not indicative of future results. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.

Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.

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