Stocks shake off losses, skyrocket; jobs report, Fed’s stance ease anxiety

Trader Michael Milano works Friday on the floor of the New York Stock Exchange, where the Dow gained 747 points after losing 660 on Thursday.
Trader Michael Milano works Friday on the floor of the New York Stock Exchange, where the Dow gained 747 points after losing 660 on Thursday.

U.S. stocks soared Friday, helped by a strong jobs report and encouraging words from the Federal Reserve chairman, a day after fears about China's slowing economy sent shock waves through markets worldwide.

The S&P 500 index climbed 84.05 points, or 3.4 percent, to 2,531.94, more than wiping out Thursday's loss. The Dow Jones industrial average rose 3.3 percent to 23,433.16 after adding 832 points at one juncture during the afternoon, ending with a gain of 746.94. The Nasdaq composite jumped 275.35 points, or 4.3 percent, to 6,738.86.

The Labor Department said U.S. employers added 312,000 jobs last month, a far stronger result than experts had anticipated. U.S. stocks have tumbled since October as investors worried that the economy might slow down dramatically because of challenges including the trade dispute and rising interest rates. Although unemployment rose to its highest level since July at 3.9 percent, economists believe the increase is because more people are looking for jobs, with some 400,000 people on the hunt last month.

Fed Chairman Jerome Powell gave investors another boost by noting that the central bank would "watch to see how the economy evolves," suggesting it would ease the rate of interest-rate increases if the economy falters.

Hopes for progress in the U.S.-China trade dispute also helped cheer investors.

China's Commerce Ministry said trade talks will be held Monday and Tuesday in Beijing, and investors will again look for signs the world's largest economic powers are resolving their dispute. The tensions have dragged on for nearly a year, slowing business and dragging down stock indexes worldwide.

The first week of 2019 has been riddled with the same volatility that plagued Wall Street throughout December, fueled by a partial government shutdown and concerns that China's status as an engine of the global economy is likely in jeopardy.

Throughout his time in office, President Donald Trump has frequently pointed to the markets as proof of his success. But as the markets have crumbled, he has blamed the Fed and his opponents. In tweets Friday morning, the president attributed the volatility on Wall Street to the Democrats' takeover of the House but insisted "things will settle down."

Thursday was particularly brutal day for markets after Apple announced that it was cutting its quarterly revenue forecast for the first time in 15 years because of "economic deterioration" in China. The company's shares sank 10 percent, and other tech and China-exposed companies took similar hits, dragging the Nasdaq down 3 percent into bear territory. The Dow dropped 660 points, or 2.8 percent, to close at 22,686. The S&P 500 fell 2.5 percent.

For the past 20 years, China's explosive economic expansion -- fueled by a wealthy, ever-growing middle class of more than 400 million consumers -- has anchored and enriched the global economy. But as the juggernaut loses its power, during a trade war with the United States, it likely will cause trouble for many Western companies that have been buoyed for years by China's extreme buying power.

The U.S. and China have raised tariffs on billions of dollars of each other's goods in a fight over issues, including Beijing's technology policy. Last month, Trump and Chinese leader Xi Jinping agreed to 90-day cease-fire as a step toward defusing tensions, but that failed to calm the stock market.

"There are a heck of a lot of U.S. companies that have a lot of sales in China that are basically going to be watching their earnings be downgraded next year," Kevin Hassett, chairman of the White House Council of Economic Advisers, said in an interview Thursday with CNN.

At first buoyed by the jobs report Friday morning, stocks rose even further after Powell said the central bank will be flexible in deciding if and when it raises interest rates. He added that the Fed is open to making changes in the way it shrinks its giant portfolio of bonds, which affects rates on long-term loans such as mortgages.

Until recently, the Fed had suggested it planned to raise short-term interest rates three times this year and next, and Powell said the Fed's balance sheet was shrinking "on auto-pilot." Wall Street feared that the Fed might be moving too fast in raising borrowing costs, said Phil Orlando, chief equity market strategist at Federated Investors.

"The American economy is booming based on today's reading of the employment situation, which should go a long way to reassuring nervous Nellies in financial markets," Chris Rupkey, chief financial economist of MUFG Union Bank, said in a note to investors Friday.

Mario Picone (center) works with fellow specialists Friday on the floor of the New York Stock Exchange as stocks staged a rally after positive economic news.
Mario Picone (center) works with fellow specialists Friday on the floor of the New York Stock Exchange as stocks staged a rally after positive economic news.

The Fed's interest-rate and bond portfolio policies "were at the top of the list of things we were concerned about, which is why the statement Powell made today is so supportive of the market," Orlando said. "The Fed understands that what they attempted to communicate last month was inartful, that they didn't get the right message across, and Powell tried to reset."

About 90 percent of the stocks on the New York Stock Exchange traded higher Friday.

Technology companies, banks, health care and industrial companies all made strong gains.

Smaller and more U.S.-focused companies did even better than larger multinationals. The Russell 2000 index surged 49.92 points, or 3.8 percent, to 1,380.75. Smaller companies have fallen further than larger ones in the past few months as investors got nervous about how the U.S. economy will perform in 2019 and 2020.

Stocks have seesawed between big gains and losses after their big December plunge. Katie Nixon, the chief investment officer for Northern Trust Wealth Management, said investors will continue to react to the health of the economy, and to concerns about high levels of corporate debt as interest rates rise.

"We don't expect that this will be the end to the volatility," she said. "There's mounting evidence we're going to see a slowdown," albeit not a severe one.

China also took steps to bolster its economy Friday. The People's Bank of China said it would cut the amount of cash that banks have to hold as reserves against bad times, essentially freeing up about $218 billion.

Reflecting Friday's optimistic tone, crude oil prices also rose. The U.S. benchmark for oil prices climbed above $48 a barrel.

And shares in Europe and parts of Asia were higher. One notable exception among global markets was Japan, where shares fell in the first trading day of the year.

The dollar strengthened. It rose to 108.51 yen from 107.77 yen. The euro rose to $1.14 from $1.1391. The British pound moved up to $1.2740 from $1.2630.

Wholesale gasoline dipped 0.1 percent to $1.35 a gallon and heating oil added 1.6 percent to $1.77 a gallon. Natural gas rose 3.4 percent to $3.04 per 1,000 cubic feet.

While many analysts welcomed the day's positive news as evidence of a robust economy, others cautioned that it doesn't erase signs of an impending slowdown.

"I would not view this as a sign that growth in 2019 will be as strong as 2018," said Michael DePalma, chief executive of PhaseCapital. "A strong employment report is a welcome sign of relief, but I don't think it materially changes the fact that we still have a flat yield curve and that this economic cycle is very mature."

Information for this article was contributed by Taylor Telford of The Washington Post; by Marley Jay of The Associated Press; and by Alexandra Stevenson and Amie Tsang of Bloomberg News.

A Section on 01/05/2019

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