The U.S. stock market delivered a surprising turnaround on Friday, with the S&P 500 index experiencing its most impressive intraday comeback since the March banking crisis. This unexpected surge occurred despite a significantly better-than-anticipated monthly jobs report for September.
Many pondered whether this substantial resurgence indicated that investors were no longer concerned about the Federal Reserve’s fight against inflation or the potential negative impact of higher interest rates on the U.S. economy.
Gina Bolvin, president of Bolvin Wealth Management Group, remarked that stocks initially plummeted in response to the remarkable jobs report, hinting that the Fed might continue its actions. However, as the market absorbed the fact that the labor market remains robust, stocks rallied. This begs the question: could good news finally be deemed as good news?
Bolvin also speculated that this rally might be partly attributable to seasonal factors, as September is traditionally a challenging month for stocks. Additionally, she emphasized a growing sense of optimism surrounding the end of the earnings recession for American corporations.
According to John Butters, senior earnings analyst at FactSet, analysts are predicting a corporate earnings growth rate of 5.9% for S&P 500 companies in the final quarter of the year. These estimates come after the stock index experienced four consecutive quarterly earnings declines on a year-over-year basis.
During Friday’s trading session, the S&P 500 index initially fell by 0.9%. However, it ultimately ended up posting an impressive 1.2% advance, marking its most substantial intraday recovery since March 24, 2023, according to Dow Jones Market Data. The Dow Jones Industrial Average also secured a 0.9% gain, while the Nasdaq Composite Index rose 1.6% higher.
The movement in stocks and bond yields underscores positive sentiment
Chris Fasciano, a portfolio manager at Commonwealth Financial Network, acknowledges the encouraging movement in the stock market, especially considering the rise in bond yields. However, he emphasizes the importance of sustained follow-through in the coming week.
The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) has experienced five consecutive weeks of growth, reaching 4.783% on Friday. Simultaneously, the 30-year yield (BX:TMUBMUSD30Y) rose to 4.941%, as reported by Dow Jones Market Data.
Read: Potential Market Impact of 5% Bond Yields
While the U.S. stock market remains open on Monday, the bond market will be closed in observance of Columbus Day and Indigenous Peoples Day. This pause gives investors an opportunity to reflect before a significant week of economic data that could ultimately influence the Federal Reserve’s decision on interest rates.
Fasciano believes that next week’s economic releases will dictate the trajectory for both stocks and bonds. In particular, attention will be focused on September’s inflation reports, with the producer-price index scheduled for release on Wednesday and the consumer-price index due on Thursday. Additionally, the Fed minutes from their policy meeting in September will be released on Wednesday.
Looking ahead, Fasciano highlights the importance of next week’s reports, as they will heavily influence the bond and equity markets’ future direction. The Federal Reserve will undoubtedly carefully consider these reports leading up to their next meeting on October 31st to November 1st.