U.S. stocks turned higher early Monday morning after finishing close to flat Friday following a surprisingly strong jobs report which cast doubt on if the Federal Reserve will be able to shift away from interest-rate increases anytime soon.
The S&P 500 and Nasdaq Composite have now risen for three straight weeks, chipping away at a substantial portion of their losses from the rest of the year. The S&P 500 dropped 6.75 points, or 0.2%, to 4,145.19 on Friday, making up most of its losses from early in the trading day. For the week, it rose 0.4%. The Dow Jones Industrial Average was up 76.65 points, or 0.2%, to 32,803.47 and fell 0.1% for the week. The Nasdaq Composite declined 63.03 points, or 0.5%, to 12,657.55 and rose 2.2% for the week.
Investors had come to widely believe that the Fed could pivot to cutting interest rates as early as the first half of 2023, given signs of cooling activity across the economy. That would have been a balm for markets, which have tumbled this year as the Fed has swiftly raised interest rates to combat stubbornly high inflation.
However, Friday’s data showed the labor market was doing anything but cooling. The labor market added 528,000 jobs in July — more than doubling what analysts had estimated and returning payrolls to their pre-pandemic level. Meanwhile, the unemployment rate fell to 3.5%, near historic lows.
That left investors with a mixed picture: A key pillar of the economy remains strong, which should be good news for markets. But strong data means the rate increases that have sent stock and bond prices lower this year aren’t likely to go away anytime soon.
It also raises questions about whether stocks can continue their recent comeback. Markets also have been rattled by Russia’s war on Ukraine, which caused a spike in prices of oil, wheat and other commodities, and by uncertainty about Chinese anti-virus curbs that have disrupted manufacturing and shipping.
Higher interest rates are meant to dampen inflation by cooling business activity, but that also raises the risk of recession and job losses. The latest inflation spike is unusual because forecasters blame shortages of goods due to the coronavirus pandemic, rather than rapid economic growth.
Meanwhile, Asian stocks were mixed Monday after strong U.S. jobs data cleared the way for more interest rate hikes and Chinese exports rose by double digits.
Shanghai and Tokyo advanced while Hong Kong and Seoul retreated.
The Shanghai Composite Index rose 0.2% to 3,233.07 after China’s July exports beat forecasts. Exports in July surged 18% compared with a year earlier while imports rose just 2.3%, reflecting weak global demand, Chinese customs data showed Sunday. The country’s global trade surplus swelled to a record $101 billion.
The Hang Seng in Hong Kong fell 0.8% to 20,040.21 while the Nikkei 225 in Tokyo gained 0.2% to 26.230.90. The Kospi in Seoul gained less than 0.1% to 2,491.91 and Sydney’s S&P-ASX 200 shed less than 0.1% to 7,009.80. India’s Sensex opened up 0.4% at 58,613.39. New Zealand and Southeast Asian markets retreated.
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