On Friday, the S&ampP 500 achieved a new peak for the year, bolstered by the latest jobs report and University of Michigan consumer survey data, which indicated a robust economy and easing inflation. The development has heightened optimism for the economyU+02019s potential U+02019soft landing.U+02019

The S&ampP 500 experienced a 0.41% increase, closing at 4,604.37, while the Nasdaq Composite edged up by 0.45%, finishing at 14,403.97. The Dow Jones Industrial Average also saw gains, rising by 130.49 points, or 0.36%, to conclude at 36,247.87.

Last week, the S&ampP 500 posted its highest yearly close and surpassed its 2023 intraday high set in July, reaching over 4,609 during afternoon trading on Friday. It marks an approximate 20% increase for the year, with the index at its highest since March 2022. All major averages ended the week on a positive note, with the broad market index up by 0.2% and the Dow slightly higher, marking their longest winning streak since 2019. The Nasdaq climbed 0.7%. 

Michael Arone, Chief Investment Strategist at State Street Global Advisors, noted that the employment data reflects an economy far from recession. He emphasized that declining inflation expectations and improving consumer sentiment are encouraging signs supporting the soft landing scenario. 

"The trajectory for stocks and risk assets remains upbeat as long as the soft landing scenario holds," he stated. He highlighted that factors like decreasing inflation and an improved balance between labor supply and demand, without a significant rise in unemployment, are positive indicators for market sentiment.

 

Jobs report and interest rates 

Last Tuesday, the Job Openings and Labor Turnover Survey (JOLTS) revealed the lowest labor market figures since March 2021, with job openings dropping to 8.773 million against an expected 9.4 million.

On the flip side, continuing claims recently reached a two-year peak and showed a significant drop of 64,000 from the prior week — the most substantial decrease since July. It marks only the second reduction in continuing claims in the past 11 weeks, suggesting a trend towards a softer job market, although future data may show some fluctuations. 

In further positive news for optimistic market watchers, there was an upward adjustment in productivity to 5.2% from the initially reported 4.9%, alongside a decrease in unit labor costs to 2.6% from 3.2%.

Yields on the 10-year Treasury reached a three-month low of 4.106% on Friday but have since climbed by approximately 12 basis points to 4.25% following the latest employment data. This rise, occurring after a roughly 90 basis point drop in 10-year yields over seven weeks, hints that the decline may have been too rapid.

Although the increase doesnU+02019t change the recent downward trend, it raises questions about whether market expectations regarding the trajectory of yields and potential Federal Reserve rate cuts next year are overly optimistic.

As for the Federal ReserveU+02019s future actions, BloombergU+02019s probability estimates for a rate cut next year have decreased over the past week. Last month, the likelihood of a cut at the March FOMC meeting was around 76%, but this has now reduced to 48%.

While no surprises are anticipated at the upcoming FOMC meeting, Federal Reserve Chair Jerome Powell might adopt a more hawkish tone than the market currently expects. The Fed will also have new inflation data to consider before announcing its rate policy, with NovemberU+02019s Consumer Price Index (CPI) due on Tuesday morning and the Producer Price Index (PPI) set for release on Wednesday.

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