U.S. Stocks Rally on Jobs Report
|07/02/2020 | 10:12am|
By Caitlin Ostroff
U.S. stocks jumped Thursday after the June employment report showed the economy gained more jobs than expected last month.
The U.S. added 4.8 million jobs in June and the unemployment rate improved to 11.1%, marking the second month in a row that employers added jobs since massive waves of layoffs gripped the country amid the coronavirus pandemic.
The Dow Jones Industrial Average added almost 450 points shortly after the opening bell, rising 1.7%. The S&P 500, meanwhile, jumped 1.5%, on track for its fourth day of gains. The tech-heavy Nasdaq Composite also rallied, adding 1.4%.
Economists surveyed by The Wall Street Journal projected that employers added 2.9 million jobs and the unemployment rate fell to 12.4% in June, following May's payroll gain of 2.5 million and jobless rate of 13.3%. Before the coronavirus drove the U.S. into a deep recession, the unemployment rate was hovering around a 50-year low of 3.5%.
Though the unemployment rate remains historically high, investors said Thursday that they are instead looking for signs of progress.
"These numbers are quite large and represent basically the opposite of the closing of the economy," said Jamie Cox, managing partner for Harris Financial Group. "If we can get the unemployment rate under 10% in the next read, then we'll be able to say this is a full-on recovery."
Signs of the U.S. economy's revival have bolstered optimism among some investors that the damage caused by the coronavirus pandemic could be quickly erased. That, combined with speculation that the Federal Reserve and the government will continue funneling large amounts of money to American businesses and households, is propelling stocks higher.
"In my mind, this is the beginning of a new bull market," said Patrick Spencer, managing director of U.S. investment firm Baird. "Aggressive fiscal and monetary stimulus is going to continue and that's going to support the market, and recent economic data suggests a recovery is starting to emerge."
However, the survey data were largely collected in mid-June and won't reflect recent government-mandated business closures and related layoffs over the past two weeks as some states in the South and West reversed or paused reopening plans.
Weekly unemployment claims data, which offer a more up-to-date view on the U.S. labor market, showed the number of new applications for jobless benefits fell by 55,000 to 1.43 million last week.
The number of applications for jobless benefits filed every week has come down from a peak of nearly 7 million in late March, but has stabilized near a historically high 1.5 million, an indication that companies are continuing to cut jobs.
"Everybody is obviously watching the changes in the American labor market," said Florian Hense, an economist at Berenberg Bank. "The U.S. consumer is the most important driver of the global economy."
While economic data may continue to signal recovery in the short term, the revival is likely to slow, and even sputter, as businesses navigate their way through new or remaining restrictions on social and economic activity, investors said. American consumers could also continue to avoid restaurants and entertainment venues because of the infection risk or concerns about their paychecks even after state and local authorities ease restrictions, which would dampen the pace of the economic revival.
The surge in coronavirus cases in some states prompted Apple to close 16 locations in Florida, Mississippi, Texas and Utah, with plans to shut down 30 more locations by Thursday. McDonald's is also pausing the reopening of dine-in service in the U.S.
"There are huge questions over whether the recovery will continue at this pace over the coming months" on nonfarm payrolls, said Andrew Hunter, senior U.S. economist at Capital Economics. "Employment is pretty key for consumer spending."
Shares of cyclical stocks led Thursday's gains higher, with companies including American Express and Coty rising. Both gained more than 3% shortly after the opening bell.
Still, the gains across the market were broad-based, with all 11 sectors of the S&P 500 rising.
The pan-continental Stoxx Europe 600 gained 2%, while most major Asian equity benchmarks ended the day higher.
Hong Kong's Hang Seng Index closed up 2.9%, while the Shanghai Composite Index gained 2.1%.
In bond markets, the yield on the 10-year Treasury note rose to 0.699% from Wednesday's 0.682%. U.S. bond markets will close at 2 p.m. ET ahead of the Independence Day holiday.
-- Caitlin McCabe contributed to this article.
Write to Caitlin Ostroff at email@example.com