Stocks fell before the open on Friday as investors assessed the monthly U.S. jobs report, which could provide impetus for the Federal Reserve to cut interest rates.
Dow Jones Industrial Average futures (^DJI) fell about 0.4%, while S&P 500 futures (^GSPC) fell about 0.3%. Contracts on the tech-heavy Nasdaq 100 (^NDX) fell nearly 0.8%.
The U.S. unemployment rate unexpectedly fell to 3.7% in November, the nonfarm payrolls report showed. This reflects signs that the labor market may not be cooling as quickly as many had originally thought.
Meanwhile, the economy added 199,000 jobs, up from the previous month, as striking auto workers and Hollywood actors returned to work.
The report will serve as a test for stocks that rallied as investors grew optimistic that the Fed’s interest rate hikes have peaked and a “soft landing” is imminent for the U.S. economy. Evidence of a slowdown in the labor market in earlier data this week was seen as a sign that the Fed’s fight against inflation is paying off.
Read more: What the Fed’s pause on interest rate hikes means for bank accounts, CDs, loans and credit cards
Elsewhere, Britain’s antitrust watchdog said Friday it would review OpenAI’s partnership with Microsoft (MSFT) in light of a possible merger investigation. The move comes after AI enthusiasm boosted tech stocks on Thursday, with Alphabet (GOOGL) and AMD (AMD) gaining following the launch of their products.
In commodities, oil prices recovered but are still on track for their longest losses in five years as the market weighs whether additional OPEC+ cuts will stave off global oversupply. West Texas Intermediate (CL=F) futures and Brent (BZ=F) crude oil futures were both more than 2% higher.
The Fed’s interest rate bets are on the move
As expected, Friday’s hotter-than-expected jobs report is already impacting how traders expect the Federal Reserve to behave in the coming year.
The likelihood that the Fed will cut interest rates in January fell sharply early Friday – to 4% from 15% on Thursday, according to data from CME Group.
Looking ahead to March, when many economists expect the Fed to begin cutting rates, rates are expected to be 25 basis points below current levels, down to 45% from 55% yesterday. The probability that the Fed will cut interest rates by 50 basis points by March has fallen to 3% from 9% on Thursday.
Next Tuesday’s inflation numbers will be the next chance to reset these expectations, but reading Friday’s report is clear: the Fed wanted to be patient and can probably stay that way.
The November jobs report provides relief for the Fed
The U.S. economy added 199,000 jobs in November while the unemployment rate unexpectedly fell to 3.7%, taking pressure off the Federal Reserve to cut interest rates early next year.
Economists had expected the unemployment rate to remain stable at 3.9%.
Wage gains rose more than expected in November from the previous month – up 0.4% from the 0.3% expected – but fell to 4% on an annual basis, in line with estimates but below the annual increase of 4.1 % is in October.
Slowing wage growth as the economy continues to add jobs will likely reinforce the Fed’s view that a soft landing is coming into focus for 2024.
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