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Stocks Rally After Jobs Report Shows Slowing Wage Gains -- WSJ

The Wall Street Journal · 01/06/2023 11:04

By Alexander Osipovich and Caitlin McCabe

U.S. stocks rallied on Friday after fresh data showed a slowdown in wage growth, an upbeat sign for the Federal Reserve's battle against inflation that could ease pressure for further interest-rate hikes.

The Dow Jones Industrial Average rose more than 500 points in morning trading, or 1.6%, while the S&P 500 gained 1.6%. The technology-heavy Nasdaq Composite also added 1.6%.

Still, stock indexes are set to close the first week of 2023 in mixed territory. The Dow and S&P are on track for modest weekly gains, while the Nasdaq is poised to end the week with a small loss.

The Labor Department's monthly jobs report showed that employers added 223,000 jobs in December, more than the 200,000 expected by economists. The robust pace of hiring shows that the U.S. jobs market had held up even as the Fed's rate hikes have sparked worries about a potential recession.

The report also showed wage growth continuing to cool. Average hourly earnings rose 0.3% in December from the previous month, down from a 0.4% increase in November. They were up 4.6% from the previous year, down from a revised 4.8% gain in November and well below a March peak.

"Investors are celebrating the fact that the average hourly earnings number was less than expected," says Michael Arone, chief investment strategist at State Street Global Advisors. "There was fear going in that wage inflation would remain hot."

Friday's jobs data will likely factor heavily into the Federal Reserve's next policy decision at its Jan. 31-Feb. 1 meeting.

In recent weeks, money managers had grown hopeful that inflation will slow quickly in the months ahead, possibly prompting the Fed to begin cutting rates later this year. But this week has reminded investors the path forward could be more complicated.

Minutes from the Fed's last policy meeting, released Wednesday, showed that officials expect to keep raising interest rates in case price pressures prove more persistent. Meanwhile, Friday's hiring data added to evidence that the U.S. labor market remains strong -- a situation that benefits workers but could add to inflationary pressures.

"The market is already pricing cuts in 2023, which we think is misplaced, " said Hani Redha, global multi-asset portfolio manager at PineBridge Investments, of interest rates. He noted that while data indicates that parts of the U.S. economy are clearly slowing, "there's no imminent sign of things falling off a cliff."

Mr. Redha said he will also be carefully watching corporate results during the fourth-quarter earnings season, which kicks off in earnest next week. "For us, the key is to be watching profitability and the reaction to that, and what companies do with their labor force," he said.

Some of 2022's major market trends are carrying into the new year. Shares of growth and technology companies have continued to decline -- Tesla Inc. and Microsoft Corp., for example, have lost 12% and 7%, respectively, so far this week. News of a sharp drop in monthly deliveries in China helped keep Tesla shares under pressure Friday.

Conversely, cyclical stocks, including those of airlines, banks and homebuilders, have climbed this week.

Bond yields fell after Friday's jobs report. The yield on the benchmark 10-year Treasury note dropped to 3.621%, from 3.720% Thursday.

Overseas, the pan-continental Stoxx Europe 600 added 0.7% and was on pace to finish the week with gains.

Asian indexes were mixed. Hong Kong's Hang Seng fell 0.3% on Friday, while in mainland China, the Shanghai Composite gained less than 0.1%. Japan's Nikkei 225 added 0.6%.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

(END) Dow Jones Newswires

January 06, 2023 11:04 ET (16:04 GMT)

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