Stocks Soar, Treasuries Plunge as Fears Subside Over Economic Growth, Fed Policy

The jobs data lessened fears that the economy was slowing down. Powell’s comments relieved fears that the Fed may be making a policy error by tightening too fast. Both factors have contributed to the recent heightened volatility in the financial markets.
James Hyerczyk
Srocks green

The major U.S. stock indexes finished sharply higher on Friday on the back of two key bullish events. In the first event, the Labor Department’s December jobs report showed the economy added a robust 312,000 jobs. This was much higher than the consensus forecast of 176,000 jobs. Shortly thereafter, Federal Reserve Chairman Jerome Powell said the central bank will be more accommodative by exercising patience in raising rates, subduing fears of a hawkish Fed in 2019.

In the cash market, the benchmark S&P 500 Index settled at 2531.94, up 84.05 or +3.17%. The blue-chip Dow Jones Industrial Average finished at 23433.16, up 746.94 or +3.05% and the tech-based NASDAQ Composite closed at 6738.86, up 275.36 or +3.79%.

The jobs data lessened fears that the economy was slowing down. Powell’s comments relieved fears that the Fed may be making a policy error by tightening too fast. Both factors have contributed to the recent heightened volatility in the financial markets.

Individually, Boeing was the Dow’s biggest gainer, surging 5.2 percent. Another Dow-member Intel also rose in response to an upgrade from Bank of America Merrill Lynch to buy from neutral.

The rally in the NASDAQ was more broad-based. Shares of Netflix and Intel jumped 9.7 percent and 6.1 percent respectively. Netflix was helped further after Goldman Sachs added the streaming service to its conviction list. Goldman analyst Heath Terry called Netflix “one of the best risk/reward propositions in the Internet sector.”

U.S. Treasury Market

U.S. Treasury yields jumped on Friday, triggering a massive break in the Treasury notes and Treasury bonds futures markets. The move was not only fueled by massive monthly jobs growth which blew away the estimates, but also a bigger-than-expected rise in wage growth. Sellers were also driven by a dramatic shift in the tone of U.S. Federal Reserve Chairman Jerome Powell, who reversed his hawkish tone from December to dovish.

The number of jobs added to the economy in December surged more than expected, and the figures from October and November were revised higher. The Unemployment Rate rose, but this was because the number of people looking for jobs increased. More importantly for Treasury investors, wages jumped 3.2 percent from a year ago, gaining 11 cents between November and December, an increase of 0.4 percent. That beat the Wall Street estimate for a 0.3 percent increase.

Powell triggered an acceleration in the selling pressure when he said, “As always, there is no preset path for policy.” “And particularly with muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”

At the end of the trading session in the cash Treasury market, 2-year U.S. Treasury notes were yielding 2.498, up 0.109 percent. 10-year U.S. Treasury notes were yielding 2.668, up 0.115 percent and 30-year Treasury bonds were yielding 2.981, up 0.081 percent.

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