U.S. stocks jumped to record levels on Friday, even after a disappointing April job report as the weak number convinced investors that simple monetary policies that sparked the historic rally in the market will stay in place longer. Some investors also disliked the report as a one-off slip that does not signal a slowdown in the economic recovery.
The S&P 500 rose 0.7% to 4,232.60 and hit a record high. The Dow Jones Industrial Average rose 229.23 points, or 0.7%, to 34,777.76 to hit another closing high. The tech-heavy Nasdaq Composite fell 0.9% to 13,752.24.
During the week, the Dow rose 2.7% to break a two-week losing streak. The S&P 500 was up 1.2% while the Nasdaq Composite was down 1.5% this week.
According to the Dow Jones, the number of non-farm workers rose by just 266,000 in April, far less than the 1 million economists expected. The unemployment rate rose to 6.1% last month due to an increasing shortage of available labor, above expectations of 5.8%. In the meantime, the originally estimated total has been reduced from 916,000 in March to 770,000.
Investors are betting that the lack of large jobs could maintain the Federal Reserve’s simple policies, including record lows and a massive bond purchase program. Tech stocks that gained during the pandemic under the low-interest regime outperformed after the data was released. Microsoft and Tesla both gained more than 1%, while Netflix, Alphabet and Apple saw gains. Higher interest rates hit growth stocks the most as they reduce the value of their future earnings.
“The Fed will feel some justification for its reluctance to go for a rejuvenation,” said Adam Crisafulli, founder of Vital Knowledge, in a note following Friday’s job report.
Investigations by Bank of America only warned on Friday that strong economic data could hit stocks, especially tech stocks, if the central bank pulled back on its simple monetary policy.
There were also some investors who felt the April job count wasn’t exactly what it seems.
“It was a big surprise,” Goldman Sachs chief economist Jan Hatzius said on CNBC’s “Squawk on the Street”. “I think you always have to take a grain of salt with every data release, and I think you have to take this with a rock,” he said, citing seasonal adjustments as a potential source of error.
Even so, the disappointing number of jobs has poured cold water on many economists who have seen a strong rebound in employment growth. Goldman Sachs economists expected a total of 1.3 million jobs to be created in April.
Some economists are forecasting double-digit growth for the current quarter after gross domestic product rose 6.4% on an annualized basis in the first quarter and weaker data could jeopardize these forecasts.
“It was disappointing read about job creation and challenges the assumption that the second quarter will continue the positive momentum seen at the beginning of the year,” said Ian Lyngen, head of US rates at BMO, in a note.
Roku shares rose more than 11% after the streaming company beat expectations with its first quarter results. According to Refinitiv, Roku posted adjusted earnings of 54 cents per share, compared to an estimated loss of 13 cents per share. Sales increased by 79% compared to the previous year and exceeded expectations.
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