Stocks rose to reach record highs on Friday as investors digested a disappointing April jobs report, which showed the U.S. economy added back far fewer jobs than expected last month despite easing stay-in-place restrictions.
The S&P 500 and Dow each reached highs. The Nasdaq advanced after the disappointing economic data appeared to make a case for monetary policy to stay on hold and interest rates to stay low, supporting tech and growth stocks. Treasury yields steadied after sinking immediately following the jobs report, with the 10-year yield hovering below 1.58%.
The Labor Department’s April jobs report showed that U.S. employers brought back just 266,000 jobs in April, whereas a gain of at least 1 million had been expected. Payroll gains for March were also revised lower. The unemployment rate unexpectedly increased to 6.1%, widening further from its pre-pandemic level of 3.5%.
The disappointing data served to bolster some economists’ and central bankers’ claims that risks to the downside still persist for the U.S. economic recovery, even as more social distancing standards get lifted. Altogether, the U.S. economy remained 8.2 million payrolls short of pre-pandemic levels, and both the unemployment rate and labor force participation are still off from their February 2020 levels.
Federal Reserve Chair Jerome Powell has suggested he would want to see a “string” of strong payroll gains totaling more than 1 million before the central bank considers adjusting its ultra-accommodative monetary policy posturing. With the April jobs report such a stark disappointment, it appeared the economy still did remain far from the central bank’s targets of reaching maximum employment and would keep the Federal Reserve on hold with its current policies.
“The smaller rise in payrolls should at least assuage some concerns around the Fed policy outlook,” Seema Shah, Chief Strategist at Principal Global Investors, wrote in an email Friday morning. “As we have heard several times in recent days, even a very strong jobs number wouldn’t have caused the committee to formally discuss changing the pace of bond purchases, so today’s number certainly won’t be giving the Fed cause for concern. They will be in no rush to bring forward tapering plans”.
Heading into the report, investors had been contemplating improvements in other economic data with both optimism about the post-pandemic rebound and trepidation over the implications for monetary policy, with persistently strong data likely to bolster the case for the Fed to ease up on policies that had supported the recovery as well as asset prices. Prospects of higher interest rates have especially weighed on growth and technology stocks, which would see valuations come under pressure once rates lift from their current near-zero levels.