Stocks opened in the green across all three major indices as investors are showing some early optimism that the once red-hot labor market is showing signs of cooling. So why are stocks up today?
Well, it appears investors are responding to private payroll data from ADP, showing just 103,000 added jobs in November in the U.S. This is actually below the 130,000 forecast from polled Reuters economists. Additionally, October payrolls were revised lower to 106,000 jobs from 113,000.
Today’s data comes as something of a follow-up to yesterday’s Job Opening and Labor Turnover Survey (JOLTS), which showed job openings dropped to their lowest level in more than two years in October. Indeed, the ratio of job vacancies per unemployed person dropped to 1.34, the weakest reading since August 2021. For context, the ratio was 2 to 1 just a few months ago.
While the notion of falling added jobs and job openings may seem inherently bearish, investors have been waiting to see some softening in the labor market.
Why Are Stocks Up Today?
The Federal Reserve has been anticipating a cooling labor market since its 550-basis point rate hike cycle began. With inflation seemingly having turned the corner, a dip in jobs strengthens the case for the Fed to cut interest rates next year. This is reflected in 10-year Treasury yields, which are also down today to below 4.15%, its lowest level since early September.
This notion of falling future interest rates likely has investors bullish on stocks today despite negative news for the U.S. economy by typical standards.
Most Treasury traders are pricing in between 75 and 125 basis points in rate cuts next year, bringing the Federal funds rate to between 3.75% and 4.75%.
While some members of the Fed (including Chair Jerome Powell) insist it’s “premature” to discuss rate hikes, recent jobs data reinforces the prospect. All eyes are on the November jobs report, due Friday, to inform a definitive trajectory for Fed policy.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
