U.S. employers created more jobs last month than economists anticipated and U.S. stocks rose on the positive news. Federal Reserve officials closely watch employment figures as a gauge on whether they should hike lending rates or leave them unchanged.
The U.S. Labor Department reported Friday that 255,000 nonfarm jobs were created in July. Economists were looking for U.S. employers to create 179,000 jobs in July.
The unemployment rate in the U.S. also remained steady at 4.9%, which was slightly higher than 4.8% that analysts predicted.
How the major indexes performed
The S&P 500 (INDEXSP:.INX) and the NASDAQ Composite (INDEXNASDAQ:.IXIC) registered record closings on Friday. The S&P 500 rose 0.9% to close the day at 2182.87. Following Friday’s gain, the financial sector of the S&P 500 entered positive territory for 2016.
The tech-weighted NASDAQ on its part rose 1.1% after adding 54.87 points to close at 5221.12. The gains of tech stock usually signal improving investor appetite for riskier assets.
Although the Dow Jones Industrial Average (INDEXDJX:.DJI) failed to hit a record closing, the blue-chip index still rose a decent 1% to close at 18543.53. The index was recently in a downturn whereby it closed in the red in eight out of nine sessions, thus reversing its gaining streak in July.
Mixed corporate earnings
Before Friday’s jobs data, the three major indexes were rattled by mixed corporate earnings. But the bullish employment numbers have lifted investor confidence that the growth of the U.S. economy is picking up pace. With that, hopes have increased that the Fed could raise rates sooner. When Fed policy officials met in July, they signaled that near-term risks to the U.S. had subsided, but they needed to look at the quality of economic data in the coming few months before they decided to review rates. The July jobs data now offer the Fed an incentive to hike interest rates, though an excuse not to can crop up at any time.
However, some experts worry that higher interest rates could actually complicate the picture for investors.
“If growth does advance, interest rates will go up, and low interest rates are one element keeping investors in the market,” noted Jack Ablin of BMO Private Bank. A catch 22, it seems.