The Dow climbed higher on Friday. Investors are betting that signs of an economic slowdown were strong enough to keep the Federal Reserve on track to keep cutting interest rates, a move that would boost stock prices.
Stocks were up following the September jobs report, which showed that 136,000 jobs were added to the economy. The unemployment rate dropped to 3.5%, its lowest level since December 1969.
Paul Ashworth, chief US economist at Capital Economics, called the report a “mixed bag” because of stagnant paycheck growth. Wages grew at their slowest pace since July 2018, which could slow consumer spending.
In addition, the pace of hiring continues to slow, partly because the United States is very close to full employment.
Investors on Friday looked to those broader trends as their cue. The Dow, S&P 500 and Nasdaq Composite were all trading higher. The Dow was up 170 points, or 0.7%, and the S&P 500 and Nasdaq Composite were also up 0.7%.
Still, stocks were on track to finish the week in the red, with the Dow on pace to record their worst week since the start of August.
To be sure, America’s economy remains strong: A tight labor market has kept consumer spending robust. Consumers account for two-thirds of gross domestic product. But the manufacturing sector contracted in September, the second month in a row. The services sector grew at a weaker pace last month. And Friday’s jobs report wasn’t hugely encouraging.
As stocks slumped this week, safe-haven assets like bonds and gold moved higher, and has led to higher expectations for further interest rate cuts by the Federal Reserve.
Investors are still expecting an interest rate cut from the Federal Reserve later this month, even though the chances eased some after the jobs report came out. The likelihood is now at 79%, according to the CME FedWatch Tool.
The Fed’s recent rate-cutting has intermittently given stocks a boost in recent months. But investors haven’t ignored the slowing US economy, either. A series of disappointing reports about the US manufacturing and services sectors pushed the Dow lower by 800 points over the course of Tuesday and Wednesday.
