MarketWatch reported on the state of the major indices in the US on Friday. The Dow Jones Industrial Average went up by 746.94 points, which is 3.3%, to close the trading day (and week) at 23,433.16 points. The S&P 500 Index rose by 3.4%, which is 84.05 points, to close at 2,531.94 points. And the Nasdaq Composite Index went up by 4.3%, or 275.35 points, to close the day at 6,738.86 points.
During intraday trading, the Dow went up as high as 832.42 points, the S&P 500 Index went up by 90.16 points and the Nasdaq rose by 297.18 points.
According to data from the Dow Jones Market Data, thanks to the performance on the indices on Friday, the week was saved from being the worst start to a new year for both the Dow as well as the S&P 500 since the year 2000.
The reason for Friday’s highs were that the US jobs data was released, and it was good news. According to the data, the US economy had added another 312,000 jobs in the month of December, which is far above the market expectation of 182,000 jobs.
The data also showed that wages went up faster than had been anticipated, which helped quash fears that the Federal Reserve’s optimism about raising interest rates in 2019 was misplaced.
The markets’ optimism was also buoyed by comments that the Fed Chairman Jerome Powell made during an appearance on Friday morning, that the jobs report did not increase concerns that were held about rising inflation. He also stated that the Federal Reserve would be flexible about how much it would raise interest rates this year.
Additionally, he said, the Fed would look at how aggressively it would target shrinking its balance sheet, depending on what the data on the global as well as US economy reflected. The central bank would also take into account the recent slump in the stock markets when assessing this data.
Prior to the release of the jobs report, there was already good news from China, when the Chinese Ministry of Commerce confirmed that they were to meet with the delegation of American trade officials on Monday and Tuesday next week. This meeting will mark the first time that representatives from the two governments have met since US President Donald Trump and Chinese President Xi Jinping met at the G20 Summit in Buenos Aires late last year and agreed to a 90-day truce in the ongoing trade war between the two countries.
Market optimism got an even further boost after the Chinese central bank reduced the ratio of cash reserves that banks in the country need to hold by 100 basis points, which amounts to 1%. This move is a way to help reduce a stronger slowdown in China’s economy.
More good news came when a report was released that showed that the Chinese services industry had grown at a faster pace in December vis-à-vis November. Added to that, the report also showed that export orders for the month of December rose at their fastest rate as compared to the last 6 months.
According to the portfolio manager at Federated Investments, Steve Chiavarone, the stock markets reacted positively to Powell’s comments because he underlined the fact that there wasn’t a set road for future interest rate hikes by the US central bank.
Chiavarone added that it wasn’t that the central bank was there to save the markets from volatility, but considering the magnitude of the pullback the markets have suffered, it gives an indication about its belief in the state of the economy.