Wall Street rallied in a whipsaw Friday and erased its morning losses after looking deeper into the nuances of a surprisingly strong report on the US job market. The S&P 500 climbed 1.2% after charging back from an earlier drop of 0.9%; the Dow Jones rose 288 points, or 0.9%; and the Nasdaq flipped to a gain of 1.6%. Stocks initially tumbled after a report showed US employers added nearly twice as many jobs last month as economists expected, the AP reports. The strength raised worries that a too-hot job market could keep upward pressure on inflation, which in turn could push the Federal Reserve to keep interest rates higher than investors want.
Wall Street hates high interest rates because they knock down prices for all kinds of investments. And even though the job market hasn't faltered, despite the Fed pulling its main interest rate to the highest level since 2001, high rates work to extinguish high inflation by slowing the entire economy. That raises the risk of a recession down the road. Among the potentially encouraging signals for the Fed: Workers' average wages rose at a slower rate in September than economists expected. While that's discouraging for workers trying to keep up with inflation, it could reduce the inclination of companies to keep raising prices for their products.
The Fed should be focusing on such moderate wage gains, rather than the growth in jobs, said Brian Jacobsen, chief economist at Annex Wealth Management. "The labor market isn't overheating, it's still healing," he said. Average hourly earnings rose at the slowest rate, on a year-over-year basis, since June 2021. That raises the stakes for reports due next week on inflation at both the consumer and wholesale levels. They're the next big data points arriving before the Fed makes its next announcement on interest rates on Nov. 1.
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