U.S. stocks climbed near their all-time high on Friday after the latest update on the U.S. job market cooled worries that a potentially hot U.S. economy could exacerbate financial markets, the data eased concerns that the U.S. economy might be overheating and driving inflation even higher. Inflation has remained stubbornly high, prompting the Federal Reserve to recently raise its main interest rate for the first time in three years in an effort to curb the rising cost of living.
Although Americans are expressing increased frustration regarding inflation and their personal finances, the broader U.S. economy continues to show resilience. Earlier this week, the government reported that spring economic growth was stronger than previously estimated, bolstered by consumer spending and business investment in AI data centers.
Friday’s softer-than-expected economic data led traders to reduce their expectations for a Federal Reserve interest rate hike at the upcoming meeting later this month. According to data from CME Group, the probability of a hike is now less than 23 per cent, down from 64 per cent just one week ago.
“This report strengthens the case for the Federal Reserve to remain patient,” senior economist at Vanguard. “The labor market has not deteriorated sharply, but there is also little evidence that it has meaningfully strengthened, giving policymakers reason to wait for additional data.”
The shift in expectations for an October rate hike helped stabilize a previously volatile bond market.
The yield on the 10-year Treasury briefly dipped below 5.17 per cent. This was a decline from its peak of nearly 5.35 per cent on Thursday, when it and other long-term yields approached their highest levels in two decades.
Lower yields can benefit the economy by reducing borrowing costs for everyone. Conversely, higher yields tend to put downward pressure on stock prices and other investments.
However, a robust U.S. economy is only one of several factors contributing to the recent surge in bond market yields.
Oil prices fluctuated during a volatile session, with Brent crude trading between US$98 and US$103 on Friday. It ultimately settled at US$102.25, a decline of 0.1 per cent, amid ongoing uncertainty regarding how the war with Iran will impact the global oil industry.
As oil prices recovered from their earlier losses, Treasury yields followed suit. The 10-year Treasury yield climbed back to 5.28 per cent, rising more than 0.10 percentage points from its daily low. This recovery contributed to U.S. stocks paring their own gains, after the S&P 500 had been up as much as 1.2 per cent earlier in the morning.
Concerns regarding significant government spending and the resulting accumulation of debt continue to keep yields elevated globally. In France, for instance, yields have been particularly unstable as the government manages record debt levels and a strained budget.
On Wall Street, Tesla shares rallied 4.7 per cent after the electric-vehicle manufacturer announced it delivered 486,532 vehicles during the latest quarter, exceeding analyst expectations.
Lower bond yields allow investors to justify higher valuations for stocks, even those often criticized for being overpriced. This trend helped companies in the artificial-intelligence sector build upon their already impressive gains.
Nvidia’s 1.3 per cent increase was the primary driver behind the S&P 500’s rise. As the most valuable company in the U.S. market, its stock movements carry more weight on the index than those of its peers.
These gains helped offset a 3.6 per cent decline for Nike. While the athletic apparel company reported quarterly profits that beat analyst estimates, its revenue fell short of expectations. Nike also provided a full-year profit forecast that disappointed investors.
In international markets, European indexes recovered from losses sustained the previous day following sharp swings in regional bond yields.
Asian markets saw mixed results, with Hong Kong’s Hang Seng index falling 2.6 per cent, while South Korea’s Kospi index rose 0.5 per cent.
