Stocks recorded their first significant rally of 2023 on Friday, as the release of jobs data triggered a relief rally that saw the major U.S. equity averages all rise more than 2%. This marked the biggest one-day percentage gain for the S&P 500 since Nov. 30.
The Dow (DJI) ended +2.1%, the S&P 500 (SP500) closed +2.3%, and the Nasdaq Composite (COMP.IND) finished +2.6%.
The Dow Jones jumped 700.53 points to close at 33,630.61. The S&P 500 climbed 86.98 points to end at 3,895.08, while the Nasdaq advanced 264.05 points to conclude trading at 10,569.29.
All 11 S&P sectors contributed to the broad-based rally. At the vanguard, Materials rose by 3.4%, while Info Tech and Real Estate posted gains that approached 3%.
The upswing came after the release of the government’s monthly jobs report. While headline numbers pointed to ongoing strength in the job market, the report also included signs of potential softening, including slowing wage growth. This opened the door for some bargain-hunting trades.
“Unemployment was down, which is apparently bad, and jobs were up, which is also now bad. So by that logic the only good can be people not getting paid more as fast as they used to,” Alex King of Cestrian Capital Research told Seeking Alpha, breaking down the response to the jobs report. “Or in other words – the conditions the Fed has been saying are required to ease up on the rate hikes may be arriving, ergo, equities rally on a Fed pivot hope.”
In explaining the bullish reaction to the jobs data, King contended that the move came “ultimately because everyone is so beset by Eeyoreishness right now that any hint of joy, any glimmer of hope has folks chasing their tail, covering shorts, chasing momentum lest they miss out on a glorious recovery.”
“For what it’s worth, we believe the lows are in – let’s see how well that view ages,” King concluded.
Headed into the report, shares dropped on Thursday after ADP’s data on private-sector employment showed stronger-than-expected job gains in December. This raised the fear that the Federal Reserve would need to stick to its hawkish interest rate policy to prevent a tight labor market from further fueling inflation.
On Friday morning, the U.S. Department of Labor revealed that the economy added 223K jobs in December, topping the 200K that economists had expected. Meanwhile, the unemployment rate unexpectedly dipped to 3.5%.
Still, the job gains for previous months were revised lower and average hourly earnings, while still rising 0.3%, climbed less than expected in December.
“If wage growth continues to moderate, the ongoing fears of a wage-price spiral pushing inflation higher are likely to be unwarranted,” Seeking Alpha contributor Ahan Vashi explained.
Looking to the bond market, the jobs data prompted a rally in fixed-income instruments, sending yields lower. The U.S. 10 Year Treasury yield (US10Y) fell 16 basis point to 3.56%. At the same time, the U.S. 2 Year Treasury yield (US2Y) dropped by 19 basis point to 4.26%.
Among active stocks, World Wrestling Entertainment (WWE) posted a double-digit gain after its majority shareholder signaled the pursuit of a possible sale.