U.S. equities and stock exchange traded funds surged early Friday after a strong jobs report bolstered confidence in the economic outlook, but the earlier enthusiasm faded as traders speculated that the solid numbers could trigger even more rate hikes out of the Federal Reserve.
The S&P 500 Index, along with related funds including the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO), were flat Friday.
“There was an initial knee-jerk reaction to the upside and I think things are cooling down a little bit,” Myles Clouston, senior director at Nasdaq Advisory Services, told Reuters.
The equities market rallied in early trading after data showed 235,00 jobs added in public and private sectors in February, compared to economists’ expectations of 190,000.
The unemployment rate also dipped down to 4.7% from 4.8% as both workforce participation and employment rose, and average hourly earnings grew by 0.2%, according to the New York Times. The improved employment data helped drive the initial bump in equities.
“Wages were up, the number of people looking for jobs dropped, and both those things point toward a stronger consumer, and potentially stronger corporate profits driven by that stronger consumer,” Eric Shenker, head of U.S. equity trading at Mizuho Securities USA, told the Wall Street Journal. “So it bodes well for the economy.”
Along with the strong jobs numbers, inflation is also pushing closer to the Fed’s 2% target. Consequently, options traders are betting on a 92% chance of a rate hike at the upcoming Federal Open Market Committee’s meeting, compared to an 85% chance prior to the jobs report. Some are even speculating that the Fed could hike rates more than previously expected.
“Investors are looking at the jobs report and they maybe thinking that the Fed could be poised to move four times this year,” Robert Pavlik, chief market strategist at Boston Private Wealth, told Reuters.
Goldman Sachs economists project the Fed to raise rates in March and now believe the next hike will be in June instead of September.
For more information on the markets and U.S. Stock ETFs, visit our S&P 500 category.