U.S. Investors Reassured by Rebound in Jobs Creation

The major U.S. equity indexes finished higher last week, helped by a strong performance in the global markets. Buyers shifted their focus on international stocks, particularly the emerging markets after China reported strong manufacturing activity. The strong number from the world’s second-largest economy set a bullish tone for the week.

The report that set last week’s rally in motion was the China March Purchasing Managers’ Index (PMI), which moved out of contraction and into expansion mode after more than six months of weakness. The strength was likely fueled by the government’s aggressive stimulus program including tax cuts and cheap loans.

Data was mixed last week in the U.S. with a solid reading from ISM Manufacturing PMI nearly offset by lower-than-expected Retail Sales and Durable Goods. The Non-Farm Payrolls report was also mixed with a large jump in the number of new jobs in March offsetting February’s dismal report. The recovery in payrolls also helped ease fears of a slowdown in the labor market. The unemployment rate held steady near historical lows at 3.8%, but average hourly earnings came in below the forecast.

Last week in the cash market, the benchmark S&P 500 Index settled at 2892.74, up 2.1%. For the year, the index is up 15.4%. The blue chip Dow Jones Industrial Average finished at 26424.89, up 1.9%. It is up 13.3% for the year. The technology-based NASDAQ Composite closed at 7938.69, up 2.7%. It has gained 19.6% in 2019.

What Last Week’s Economic Data Means

Last week’s U.S. economic reports although mixed reassured investors that they should expect moderate growth the rest of the year. This was good news for bullish investors because it seemingly erased concerns over an economic slowdown or even a recession later in the year.

If you recall, just two weeks ago on the heels of a dovish Fed policy statement, U.S. Treasury yields were crashing, causing a yield-curve inversion that is often regarded as a potential early indicator of a recession. Furthermore, it raised concerns about the strength of the bull market that is now over 10 years old.

Last week’s data may have been mixed, but overall I think it showed a heathy economy. Throughout the week, the yield curve steepened as investor confidence in the economy increased. Furthermore, the cash market S&P 500 Index posted its seventh consecutive gain, something it hadn’t accomplished since 2017, according to Bloomberg.

With the United States and China close to announcing a deal that will end the trade dispute and the economy showing enough growth for investors to remain optimistic, the U.S. stock market is expected to remain underpinned. However, there will be headwinds to overcome during earnings season.