S&P 500; US Indexes Fundamental Daily Forecast – Volatility Could Return as Jobs Report Raises Chances of Additional Fed Rate Hikes

The major U.S. stock indexes closed sharply higher on Friday, bolstered by stronger-than-expected jobs data. The rally helped the indexes recover from previous session losses, but only one out of the three majors was able to finish the week on the plus-side.

In the cash market, the benchmark S&P 500 Index settled at 2734.62, up 29.35 or +1.07%. The blue chip Dow Jones Industrial Average finished at 24635.21, up 219.37 or +0.89% and the tech-based NASDAQ Composite closed at 7552.21, up 110.09 or +1.46%.

The S&P 500 was helped by the financials and tech sectors which rose 1.1 percent and 1.9 percent, respectively. The Dow was boosted by Goldman Sachs which rose 1.1 percent. The NASDAQ Composite’s gains were driven by increases in Facebook, Amazon, Netflix and Google-parent Alphabet. The so-called FANG stocks drove the NYSE FANG ETF to an all-time high. Additionally, Apple also rose 1.8 percent to post a record closing high.

In economic news, the government reported the U.S. economy added 223,000 jobs in May, beating pre-report estimates of 188,000. The unemployment rate came in better-than-expected at 3.8 percent. The big news was the 0.3 percent rise in average hourly earnings. This portion of the report helped solidify the chances of a June Fed rate hike, and also raised the odds of possibly a fourth rate hike by the Fed this year.

Treasury yields jumped following the report, with the benchmark 10-year yield trading at 2.89 percent and the two-year yield rising to 2.47 percent. This news helped fuel a rally in bank stocks because of increased earning potential. J.P. Morgan Chase, Goldman Sachs, Morgan Stanley and Bank of America all rose at least 1 percent.

Stocks rallied despite concerns over a global trade war. On Thursday, stocks fell sharply after the White House slapped tariffs on Canada, Mexico and the European Union. All three threatened the same, saying they would impose countermeasures of their own. Canada said the country plans to slap dollar-for-dollar tariffs on the U.S.

Forecast

Despite the strong response to the jobs report, investors still face a mountain of uncertainty and the potential return of heightened volatility levels. Driving the volatility will be inflation fears and renewed talk of aggressive rate hikes by the Fed. The jobs report in particular could lead to added volatility moving forward because it may keep the Fed hawks on path for as many as three more rate hikes this year.

Furthermore, no one really knows the impact a global trade war could have on the economy. Additionally, the political uncertainty in Italy and Spain could raise fears of a recession in the Euro Zone which would likely have global economic implications.