Wall Street's Best Week of 2023 Nears End

NEW YORK (AP) -- Wall Street's best week of the year is getting even better Friday following a cooler-than-expected report on the job market.

The S&P 500 was 0.8% higher in morning trading and on track to rise every day this week. The Dow Jones Industrial Average was up 171 points, or 0.5%, as of 10:10 a.m. Eastern time, and the Nasdaq composite was 0.9% higher.

Stocks have surged more than 5% this week on rising hopes the Federal Reserve is finally done with its market-crunching hikes to interest rates, which were meant to get inflation under control. Friday's jobs report underscored that pressure is easing on inflation after it showed employers hired fewer workers last month than economists expected.

Treasury yields in the bond market tumbled immediately after the jobs report, releasing more of the pressure that had built up on Wall Street. The yield on the 10-year Treasury eased to 4.50% from 4.67% late Thursday and from more than 5% last week, when it hit its highest level since 2007.

It's a whiplash turnaround from just a week ago, when Wall Street was reeling after the S&P 500 had fallen 10% below its high point for the year. That put Wall Street's main index into what investors call a "correction."

Before this week, stocks had been struggling under the weight of rapidly rising Treasury yields. Those yields were in turn catching up to the Fed's main interest rate, which is above 5.25% and at its highest level since 2001.

Higher yields slow the economy, hurt prices for investments and raise the risk of something breaking within the financial system, such as the three high-profile U.S. bank failures that rattled financial markets during the spring.

The Fed put such pressure on the economy intentionally, hoping to starve inflation of its fuel. It wants the job market to cool, particularly the pay raises going to workers. The Fed fears that too-strong pay gains could create a vicious cycle that keeps inflation high.

Analysts said Friday's jobs report offered encouraging signals for the Fed, with average hourly earnings rising less in October from September than expected, though it still doesn't mean the job is done.

"Wages cooled and, even accounting for the impact of auto strikes, the pace of jobs being added appears to be cooling relative to the beginning of the year," said Andrew Patterson, senior economist at Vanguard. "The Fed will want to see more evidence that this labor market cooling represents a trend before they make a decision on any policy changes in December."

Of course, this week's sharp fall in Treasury yields could also end up hurting stock investors in the long run. Fed Chair Jerome Powell said this week that the central bank may not need to hike rates if the recent rise in yields stays "persistent." Such high yields could slow the economy and push down on inflation by themselves, without requiring the Fed to hike rates again.

A swift regression in Treasury yields could make the Fed more nervous and encourage it to consider raising rates again. The 10-year yield in just a week has already eliminated its rise from all of October. Plus, a slowing job market raises pressure on economic growth, and worries still exist on Wall Street about a possible recession even though the economic is strong at the moment.

Still, a slowing U.S. job market is exactly what investors wanted to see because it could convince the Fed to stop pumping the brakes harder on the economy and financial markets with more rate hikes.

The yield on the two-year Treasury, which closely tracks expectations for the Fed, tumbled to 4.87% from 4.99% late Thursday. Traders are also moving up their expectations for when the first cut to interest rates by the Fed could happen, potentially by the summer, according to data from CME Group. Such cuts can act like steroids for financial markets.

Even for global investors, the "Fed matters more than other central banks," and weak U.S. data is "the only game-changer for markets," foreign-exchange strategists at Bank of America wrote in a BofA Global Research report.

A separate report on Friday said that growth in U.S. services industries, such as finance and construction, was weaker last month than economists expected. Perhaps more importantly, the report from the Institute for Supply Management also suggested a slight easing in prices.

Excitement about a potentially easier Fed was more than enough to offset a fall for Apple, which is Wall Street's most influential stock.

The most valuable U.S. stock fell 1.6% despite reporting stronger profit for the latest quarter than analysts expected. Analysts said investors were likely disappointed with Apple's forecast for revenue for the last three months of 2023.

On the winning side of Wall Street was Expedia Group, which reported stronger results for the latest quarter than expected. Its stock flew 17.5% higher.

Cardinal Health was also strong following its better-than-expected profit report, and it rose 6.4%.

Stocks indexes were also higher across most of Europe and Asia.