By Joyce Yu
A better-than-expected jobs report bolstered U.S. stocks higher on Friday with the Dow surging more than 200 points at open led by gains of financial plays. “Today’s jobs numbers pack a wallop,” said Mike Loewengart, vice president of investment strategy.
“These numbers could serve as a wake-up call that our economy is hustling despite geopolitics, but that could also bring added volatility as market participants adjust their expectations for increased Fed action,” he told CNBC. “With significant year-over-year wage gains, the inflation fears of February could pick up steam again, which could bring a chorus of Fed hawks squawking for more rate hikes.”
223,000 jobs were added to the U.S. economy in May, the latest report shows, way higher than economists’ expectation of 188,000. Average hourly earnings rose 0.3% last month while the unemployment rate declined to 3.8%. Expectations for a rate hike in December inches up following the report’s release, according to the CME Group’s FedWatch tool, and treasury yields jumped too. The benchmark 10-year yield was traded at 2.92% and the two-year yield rose to 2.492%. This has pushed up bank shares with J.P. Morgan Chase, Goldman Sachs, Morgan Stanley and Bank of America all gaining more than 1%. Deutsche Bank, Germany’s biggest bank, however is facing more troubles as S&P Global Ratings has slashed Deutsche Bank’s credit rating, citing “significant execution risks” in its overhaul strategy.
Dow slumped more than 250 points on Thursday after the U.S. announced to impose tariffs on the European Union, Mexico and Canada. In response, the EU said it would impose countermeasures of its own, while Canada Foreign Minister Chrystia Freeland said the country plans to slap dollar-for-dollar tariffs on the U.S.. The latest development has undoubtedly placed the ongoing NAFTA negation in an even more difficult position. “NAFTA is the most important matter when it comes to trade and [these tariffs] don’t help,” said Art Hogan, chief market strategist at B. Riley FBR. “It’s like punching your friend in the face and then asking him to go to the movies.”
Analysts, on the other side, remain bullish about the performance of stocks market in near future. After a rocky ride in the first half of 2018, U.S. stocks could still have some upside. “There’s still a lot more positives which makes us think maybe this kind of a surprise summer rally can continue if we get a little bit of volatility even in the usually tricky month of June,” Ryan Detrick, LPL’s senior market strategist, told CNBC’s “Trading Nation” on Thursday.
Traditionally June is not an ideal time to invest. In the past decade, the S&P 500 has fallen on average by more than 1% during the month. But Detrick who favors small caps noted even the trade for small caps has started to work. “Historically speaking, when you have that leadership from those groups, that’s usually a good sign.”
