- U.S. benchmark brushes off slower hiring on Fed rate bets
- Volatility measure tumbles 12%, the most in two months
Turns out, tepid jobs growth in August was just the thing to halt a two-week slide in U.S. stocks.
American equities advanced Friday, salvaging the week for bulls, after August payrolls data signaled moderate growth that won’t force the Federal Reserve to raise interest rates soon. The report wasn’t enough to jolt stocks out of the tightest trading range in five decades, though it clinched a weekly gain for the S&P 500 Index after equities spent the first four days paralyzed in anticipation of clues on the Fed’s next move.
The hiring data showed steady gains that fell short of estimates in a Bloomberg survey, giving the Fed cover to stand pat at its next meeting without dashing optimism that the economy is strong enough to deliver an increase in corporate profits. Odds for a Fed rate hike this year had crept higher in recent weeks, stanching stock advances amid concern that tighter policy would derail an economy struggling to accelerate.
“The U.S. economy is not great, but there’s no evidence of any kind of recession or downturn at this point,” said Lew Piantedosi, vice president of growth equities at Eaton Vance Corp. in Boston, where he helps oversee almost $14 billion. “As long as investors start to get comfort that the global macro or even the U.S. macro isn’t falling off a cliff, it reinforces the comfort level with equities in general. As fear starts to go away, then markets tend to rally.”
The S&P 500 rose 0.5 percent to 2,179.98 in the five days to end half a percent below an all-time high reached Aug. 15. The Dow Jones Industrial Average rose 0.5 percent to 18,491.96, stopping a two-week slide. Shares of financial companies surged 2 percent in the week, the most since mid-July, as Wells Fargo & Co. and Capital One Financial Corp. jumped at least 3.6 percent during the five-day period.
Banks have been the beneficiaries of a rise in the odds for a Fed rate hike this year, surging over three weeks as the implied probability for a rise at September’s meeting more than doubled to 32 percent. The group’s gains make it an outlier in a market that’s gone nowhere since rallying to an all-time high in mid-August. The S&P 500 hasn’t moved outside of a band of 1.5 percent in the past 37 days, a patch of calm last seen in 1964.
While the will-they-or-won’t-they debate persists in terms of the Fed’s next steps, the resiliency of the stock market shows that its bullish underpinning still is intact, said Frank Cappelleri, executive director at Instinet LLC in New York.
“It’s a sign of speculation; people are willing to go into areas that are typically a little more risky,” Cappelleri said. “Over the past six months, we’ve been through the ringer in terms of what the economy looks like, good or bad. The signs are there that the market could accept a rate hike, whenever that comes.”
In addition, small-cap and mid-cap companies outpaced their large-cap counterparts for a third straight week, reinforcing a trend that’s been in play in the post-February rally, he said.
The measure of market turbulence known as the VIX tumbled 12 percent during the week for its biggest decrease in two months. At 11.98 as of Friday’s close, the CBOE Volatility Index has remained below its five-year average since late June.
“The volatility has been exceptionally low -- that adds to a little more of an anxious feeling,” said Leo Grohowski, who helps manage more than $197 billion in client assets as chief investment officer of BNY Mellon Wealth Management in New York. “You know that can’t continue. Volatility is going to revert to a higher level, I don’t know when or why, but what I do know is it’s dangerous to extrapolate out this really low volatility that we’re experiencing.”