US Stocks Swing as Jobs Fuel Rate-Hike Bets: Markets Wrap

US Stocks Swing as Jobs Fuel Rate-Hike Bets: Markets Wrap

Posted on July 19th, 2022

US stocks struggled for direction after the jobs report showed that employment growth remained strong, alleviating recession fears while clearing the path for the Federal Reserve to remain aggressive in its fight against inflation.

The S&P 500 and the Nasdaq 100 swung between gains and losses. Treasury yields spiked and the two- and 10-year yield curve remained inverted for the fourth day. The dollar fluctuated. Oil is headed for a weekly loss.

The jobs report reaffirms the strength of the US economy and the moderation in the number of jobs added is a “positive sign” as the Fed seeks to engineer a soft landing, Federal Reserve Bank of Atlanta President Raphael Bostic said on Friday. While he doesn’t vote on policy this year, he said he backs raising rates by 75 basis points this month. Two of the Fed’s most hawkish policymakers, on Thursday, also supported a jumbo hike in July, while dismissing recession fears. Some investors also see signs in recent data that concerns about a recession are overblown.

“The economy is slowing but the Fed wants it to slow. So I think all the recession talk is a little bit premature right now,” Priya Misra, global head of rates strategy at TD Securities, said on Bloomberg TV. “Inflation is still a problem and the Fed has changed their reaction function, I would argue. They are emphasizing – overemphasizing – headline inflation over the labor market right now.”

Federal Reserve Bank of New York President John Williams reiterated the bank’s inflation target on Friday.

US hiring rose by more than forecast in June, but participation sank.

Here’s what else Wall Street is saying about US payrolls:

“Right now, the labor market is not the problem child, it is being the well-behaved kid, so the Fed thinks they can kind of ignore the labor market right now and focus all on inflation.” - Victoria Greene, chief investment officer, and founding partner at G Squared Private Wealth.

“Today’s job number should soothe fears of an imminent recession, but it does nothing to relieve fears of considerable further Fed tightening.” - Seema Shah, chief global strategist at Principal Global Investors.

“The market is grappling with a Federal Reserve that has more leeway to be more aggressive since it doesn’t seem like the recession is upon us because the labor market is not showing any cracks yet.” - Keith Buchanan, portfolio manager at Globalt Investments.

“There is a feeling of Wile E. Coyote running over the cliff, the economy is slowing, Fed hikes will almost certainly lead to a hard landing, but with employment remaining this strong, and next week’s CPI likely to stay high, the risk that the Fed will hike higher and further than they should increase.” - Steve Chiavarone, senior portfolio manager at Federated Hermes.

Earlier, shockwaves spread through the markets after Japan’s former Prime Minister Shinzo Abe was assassinated.

Bitcoin rose and is trading at around $21,000. While recent turmoil in the crypto market does not yet pose a “systemic risk” to the broader financial system, authorities need to close regulatory gaps to protect consumers and ensure stability, according to Federal Reserve Vice Chair Lael Brainard.

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