Stocks Get Relief Rally After Jobless Claims Data: Markets Wrap

(Bloomberg) — Stocks staged a solid rebound and bonds fell after the latest US labor-market reading helped ease fears about a more pronounced slowdown in the world’s largest economy.

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All major groups in the S&P 500 advanced, with the gauge set for its biggest gain since February as data showed US initial jobless claims tumbled the most in nearly a year. As economic angst subsided, Treasuries dropped across the curve — with the selloff driven by shorter maturities. Swap traders further trimmed bets on aggressive Federal Reserve easing in 2024.

Markets have been on a tailspin since last week’s economic data spurred concerns the Fed is waiting too long to cut rates from a two-decade high, jeopardizing prospects for a soft landing. Those jitters combined with stretched positioning, underwhelming tech earnings and poor seasonal trends were among the factors spurring massive volatility around the globe.

To Ian Lyngen at BMO Capital Markets, Thursday’s data was interpreted as evidence the labor market remains solid.

“Some good news with jobless claims coming in less than expected,” said Chris Zaccarelli at Independent Advisor Alliance. “It’s hard to believe a recession has already begun. We are exercising caution, but think that the panic that started earlier in the month was overblown.”

The S&P 500 rose about 2%. The tech-heavy Nasdaq 100 climbed 2.4%. The Russell 2000 of smaller firms added 1.8%. Nvidia Corp. led gains in tech megacaps. Eli Lilly & Co. soared on a bullish outlook.

Treasury 10-year yields advanced five basis points to 4%. The dollar was little changed.

Initial claims decreased by 17,000 to 233,000 in the week ended Aug. 3, according to Labor Department data released Thursday.

“I see these claims as some kind of respite in contrast to the stress which hit markets last week with the US job data,” said Alexandre Baradez at IG. “That being said, I thing the upward trend on US unemployment intact. This still opens the door to a Fed rate cut in September.”

Any data which suggests that the Fed isn’t behind the curve in regards to its likely rate-cut in September is welcome news for investors, according to Bret Kenwell at eToro.

“Today’s jobless claims data may ease some of the concerns raised by last week’s soft jobs report,” said Chris Larkin at E*Trade from Morgan Stanley. “But with inflation data due out next week and the stock market still working through its biggest pullback of the year, it’s unclear how much this will move the sentiment needle.”

While traders in the swaps market have pulled back on their expectations for super-sized rate cuts in the US this year, they are still pricing in about 40 basis points worth of easing for September. Still, they see about 102 basis points of reductions in total for 2024, compared to around 65 basis points just over a week ago.

To Neil Dutta at Renaissance Macro Research, the issue right now is whether the Fed should be easing soon or not — and whether a large upfront move is likely or not.

“We are rallying today because of jobless claims!” Dutta said. “That’s unusual. If you get some downside surprises in the data next week, guess what happens? It will just fuel chatter back into the notion that the Fed is a bit behind the curve.”

Treasuries experienced a perfect storm over the past two weeks, with investors likely to remain focused on carry trade unwinds, labor market and growth data, inflation, and geopolitical risks in the weeks to come, according to TD Securities’ Gennadiy Goldberg.

“Markets will remain worried about the risk to a 50 basis-point cut in September and intermeeting cuts, though the pricing for both has receded significantly from recent highs,” he said. “A faster pace of Fed rate cuts also remains a worry, and we expect the Fed to cut rates by 25 basis points at each meeting starting in September until rates reach neutral at 3% by late-2025.”

The recent rout in US stocks flushed some froth out of the market, but positioning and valuations remain at risk if growth continues to decelerate and the Fed “does not show urgency” in easing monetary policy, according to Dubravko Lakos-Bujas at JPMorgan Chase & Co.

“Equities no longer a one-way upside trade, instead increasingly a two-sided debate on growth downside risks, Fed timing, crowded positioning, rich valuation, and rising election and geopolitical uncertainties,” Lakos-Bujas noted.

Corporate Highlights:

• Warner Bros. Discovery Inc., the entertainment giant, took a $9.1 billion charge for writing down the value of its traditional TV networks.

• Bumble Inc., a dating company, slashed its annual revenue outlook, signaling that an overhaul of the brand’s flagship app has failed to reignite growth.

• Eli Lilly & Co. nosed ahead of rival Novo Nordisk A/S in the race to dominate the red-hot obesity market as it expanded its supplies of weight-loss drugs.

• Under Armour Inc. reported results that exceeded analysts’ expectations and raised its guidance as the athletic-wear brand shows signs of improvement under returning founder Kevin Plank.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.8% as of 11 a.m. New York time

• The Nasdaq 100 rose 2.4%

• The Dow Jones Industrial Average rose 1.4%

• The Stoxx Europe 600 rose 0.1%

• The MSCI World Index rose 1.3%

• Bloomberg Magnificent 7 Total Return Index rose 2.3%

• The Russell 2000 Index rose 1.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro fell 0.1% to $1.0907

• The British pound rose 0.2% to $1.2718

• The Japanese yen fell 0.4% to 147.22 per dollar

Cryptocurrencies

• Bitcoin rose 6.8% to $58,924.7

• Ether rose 6.4% to $2,498.87

Bonds

• The yield on 10-year Treasuries advanced five basis points to 4%

• Germany’s 10-year yield was little changed at 2.27%

• Britain’s 10-year yield advanced one basis point to 3.96%

Commodities

• West Texas Intermediate crude rose 1.1% to $76.08 a barrel

• Spot gold rose 1.3% to $2,413.81 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Robert Brand, John Viljoen, Julien Ponthus, Allegra Catelli, Divya Patil and Richard Henderson.

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