In another sign of the uneven economic recovery, technology stocks are rallying Friday morning after the April jobs report—expected to show a stunning improvement in job creation—revealed that the labor market added far fewer jobs than forecast, signaling to investors that government stimulus efforts could last longer than expected and help push stocks higher.
Though it’s still down about 3% from an April high, the tech-heavy Nasdaq spiked more than 1.5% immediately after the Bureau of Labor Statistics revealed that the U.S. economy added just 266,000 jobs last month—about one-quarter of the 1 million job gains economists had predicted.
“Wall Street was stunned… but the Nasdaq got excited,” says Oanda Senior Market Analyst Edward Moya of the “massively disappointing” job gains, pointing to volatility in the stock market after the report.
The Dow Jones Industrial Average and S&P 500, which are more sensitive to a sluggish economy, both fell in pre-market trading before rebounding 0.3% and 0.5%, respectively.
Analysts are pinning the Nasdaq’s outperformance to renewed hopes that a struggling labor market will provide ammunition for government stimulus measures and accommodative monetary policy, both of which helped lift the market—and tech stocks in particular—to meteoric highs during the pandemic.
Reflecting the economic uncertainty and ushering in the rise in tech stocks, yields on the 10-year Treasury plunged nearly 10 basis points within minutes of the report, Moya notes.
“The U.S. economy still has a long way to go in its recovery,” Josh Lipsky of the Atlantic Council, said in a Friday note, adding that the jobs report signals that the Federal Reserve’s policy of near-zero interest rates and Congress’ push for a big infrastructure and jobs plan will continue in the months ahead.
“This employment report was a game changer for investors… and a big surprise that justifies the Fed’s cautious stance,” says Moya, citing “overly confident” labor market expectations and a slew of commentary lambasting the Fed for continuing its unprecedented monetary support (including historically low interest rates and $120 billion in monthly bond purchases) despite concerns that pumping more money into the economy could spark problematic inflation.
Stocks have soared to new highs this year, but the high-flying technology companies that led the market’s massive rally last year are no longer heading up gains. That’s largely because 10-year Treasury yields have climbed more than 60 basis points this year, luring investors into the risk-free asset class and away from tech stocks that have surged to record high prices. At the same time, investors have been flocking back to stocks in industries hard-hit by the pandemic—like energy and financials—as businesses reopen, travel picks back up and the economy recovers. The Nasdaq is up nearly 9% this year—solidly less than 14% and 15% for the S&P and Dow, respectively.
What To Watch For
There’s one more jobs report before the Fed meets on June 16 to decide when it should pull back on its economic support. Vital Knowledge Media Founder Adam Crisafulli says it would be “entirely appropriate” to suggest at the June meeting that tapering could begin in November or December, and if the market’s recent reactions are any indication, such a sign could batter stocks.