The S&P 500 and TSX rose modestly to kick off the second quarter on Friday, as the monthly U.S. jobs report indicated a strong labour market and is likely to keep the Federal Reserve on track to maintain its hawkish policy stance.
The Labor Department’s employment report showed a rapid hiring pace by employers while wages continued to climb, although not enough to keep pace with inflation.
In the wake of the payrolls report, U.S. Treasury yields jumped and a closely watched part of the yield curve between two-year and 10-year notes, seen by many as a reliable indicator of a recession, inverted for the third time this week.
U.S. employers added 431,000 jobs in March, which was shy of the 490,000 estimate but still showed strong job gains. The unemployment rate dropped to 3.6%, a new two-year low while average hourly earnings rose 5.6% on a year-over-year basis.
The report heightened expectations that the central bank is likely to become more aggressive in raising interest rates as it seeks to curb inflation as it unwinds its easy monetary policy.
“Job gains were broad, more people are going back to the office,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin.
“If other data between now and the next Fed meeting stay this rosy, the Fed will likely feel comfortable hiking by 50 basis points and announcing an aggressive rundown of its balance sheet.”
Canada’s main stock index advanced as the energy and materials sectors added to sharp gains in the first quarter of the year, but the index’s rise was not enough to move it into positive territory for the week.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 62.79 points, or 0.3%, at 21,952.95. For the week, it was down 0.2%, after five weeks of gains.
Disruptions to Russia’s commodity exports helped underpin Canadian resource shares in the first quarter, with the energy group jumping 36.2% and the materials sector, which includes precious and base metals miners and fertilizer companies, up 19.7%.
On Friday, energy stocks rose 1.7% even as plans to release crude reserves weighed on oil prices, while materials added 2.1%.
Industrials were a drag, falling 2.9%, as railroad stocks lost ground. Among individual names, BlackBerry Ltd ended 9.2% lower after the company missed fourth-quarter revenue estimates.
Canadian data showed that manufacturing activity expanded at a record pace in March as restrictions to contain the COVID-19 pandemic eased and demand conditions improved, although the Russia-Ukraine war contributed to mounting cost pressures.
The Dow Jones Industrial Average rose 139.92 points, or 0.4%, to 34,818.27, the S&P 500 gained 15.45 points, or 0.34%, to 4,545.86 and the Nasdaq Composite added 40.98 points, or 0.29%, to 14,261.50.
The defensive real estate, utilities and consumer staples were the best performing sectors on the day, with each rising more than 1%.
For the week, the Dow slipped 0.1%, the S&P edged up 0.1% and the Nasdaq advanced 0.7%.
Expectations for a 50-basis point interest rate hike at the central bank’s May meeting stand at 73.3%, according to CME’s FedWatch Tool. At its March meeting, the Fed raised rates by 25 basis points, its first hike since 2018, and a host of central bank policymakers have indicated they are prepared for bigger rate hikes.
Chicago Federal Reserve President Charles Evans said on Friday he does not see a big risk in using “some” half-point rate hikes to bring borrowing costs to neutral sooner as long as the objective was not to raise rates much faster and push them higher.
Other data on Friday showed U.S. manufacturing activity unexpectedly slowed in March, although it remained firmly in expansion territory, as tight supply chains continued to put upward pressure on input prices.
The S&P 500 closed out the first quarter on Thursday with its biggest quarterly decline since the COVID-19 pandemic in the U.S. was reaching full swing on concerns about rising prices, fueled further by the war in Ukraine, and the Fed’s response could slow economic growth. However, stocks rebounded somewhat in March, as the benchmark index gained 3.6%.
April tends to be a strong month for stocks, with its last monthly decline in 2012. Ryan Detrick, chief market strategist at LPL Financial, notes that April has the best performance on average of all months since 1950.
Video game retailer GameStop Corp, part of the “meme stock” trading frenzy last year, gave up early gains and ended down 0.95% after announcing a plan to seek shareholder approval for a stock split.
Apple Inc dipped 0.17% after J.P. Morgan removed the stock from its analyst “focus list” along with Qualcomm , which slumped 3.81%.
Volume on U.S. exchanges was 11.45 billion shares, compared with the 13.78 billion average for the full session over the last 20 trading days.
Two-year U.S. yields rose as high as 2.469%, the highest since March 2019, before falling back to 2.432%. Benchmark 10-year yields reached 2.456%, before dropping back to 2.377%. Canadian bond yields largely moved in lockstep.
The closely watched yield curve between two-year and 10-year notes inverted Friday following two brief dips into negative territory on Tuesday and late on Thursday.
That part of the yield curve reached minus 7.85 basis points, before last trading at minus 5.40 basis points.
The curve has been flattening as growth concerns and demand for duration holds down longer-dated yields relative to shorter-dated ones, which have been surging on expectations that the Fed will need to aggressively hike rates to stem the fastest inflation in 40 years.
The yield gap between two-year notes and 30-year bonds also turned negative on Friday for the first time since 2007. Three-year notes currently offer the highest yields across the Treasury curve at 2.62%.
Oil settled lower on Friday as members of the International Energy Agency (IEA) agreed to join in the largest-ever U.S. oil reserves release.
Both Brent and U.S. crude benchmarks settled down around 13% in their biggest weekly falls in two years after U.S. President Joe Biden announced the release on Thursday.
Brent crude futures were down 32 cents, or 0.3%, at $104.39 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell $1.01, or 1%, at $99.27.
Biden announced a release of 1 million barrels per day (bpd) of crude oil for six months from May, which at 180 million barrels is the largest release ever from the U.S. Strategic Petroleum Reserve (SPR).
Member countries of the International Energy Agency did not agree Friday on volumes or the commitments of each country at their emergency meeting, said Hidechika Koizumi, director of the international affairs division at Japan’s Ministry of Economy, Trade and Industry. He added that additional details could be known “within next week or so.”
OPEC+, which includes the Organization of the Petroleum Exporting Countries and allies including Russia, on Thursday stuck with plans for an increase of 432,000 bpd to their May output target despite Western pressure to add more.
In a bearish signal for demand, China’s commercial hub of Shanghai ground to a halt on Friday after the government locked down most of the city’s 26 million residents, aiming to stop the spread of COVID-19.
Reuters, Globe staff
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