U.S. Stocks Surge as Jobs Miss Gives Fed ‘Another Prod’ on Rates

(Bloomberg) -- Stocks surged as traders focused on the interest-rate implications of a U.S. labor market report that showed job creation trailed every estimate in May. Payrolls rose 75,000 after a downwardly revised 224,000 advance the prior month.

The S&P 500 jumped 0.9% as of 10:17 a.m. in New York, poised for its biggest weekly gain since November. Traders and strategists were divided on how seriously the Federal Reserve will take the second anemic employment report in four months.

• Kristine Hurley, institutional portfolio manager at Franklin Templeton:

“What was interesting leading into the announcement, there was a big question of if the numbers come in at expectations, do markets deteriorate because it reduces the chance of a Fed cut? If the numbers are actually worse fundamentally, do the markets cheer because it means there’s a Fed cut. That’s one of the difficult things of being so deep in a cycle and having significant central bank policy influencing markets -- it becomes a reliance on it. The question is do we go back to good news is bad and bad is good?”

• James McCann, senior global economist at Aberdeen Standard Investments:

“This is a report that provides the Fed another prod almost. It’s been in this patient stance and it’s been relatively happy with that, but you have to think that alongside the trade tensions picking up and further signs of domestic weakness, these are all things that challenge that stance. I’m not convinced yet that they’ll be ready to go as soon as July. We still think that September is more likely.

• Ilya Feygin, senior strategist at WallachBeth Capital LLC:

“The employment report was unquestionably much weaker and with the 75,000 2-month downward revision, it is equivalent to zero jobs created. Average hourly earnings also soft, missing by 0.1%. Sharply increases the probability of a rate cut.”

• Mike Loewengart, vice president of investment strategy at E*TRADE Financial Corp.:

“This is the type of read the doves will really take to, as it supports the argument for cutting rates beyond politics or trade issues, which were never part of the Fed’s mandate to begin with. That said, our historically low unemployment rate hasn’t moved, and even though the number came in low, we’re still creating jobs, which supports the case that the economy is still expanding.”

• Tony Bedikian, managing director at Citizens Bank:

“Equities are a little bit torn between pricing in slower growth or looking at the positive side with a potential Fed ease. So I think you have a tug of war going on between those two arguments, and I think that’s mired equities in a little bit of a choppy trading range that we’ll see over the coming days or the near term. But at the moment equities are focusing a little bit more on the potential of the Fed adding more liquidity and easing, which historically has been positive for the stock market.”

• Michael Antonelli, managing director and market strategist at Robert W. Baird & Co.:

“We’ve seen numbers weaker than that recently -- 56,000 back in February -- and we were talking about a rate cut back then. Nothing happened. The market is probably ahead of itself on a rate cut expectation. This will add to the narrative that the economy is slowing, even though it’s just one data point and people will overreact to it. The market’s taking some time to digest. I would caution against a take that this means that the very next Fed meeting will be a rate cut. ”

--With assistance from Elena Popina.

To contact the reporters on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Chris Nagi

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