Employers added 29,000 jobs in September, well below forecasts, while unemployment held at 4.2%. Treasury yields fell and stocks rose as investors weighed what the report could mean for the Fed's October decision.
Employers added 29,000 jobs in September, and average hourly earnings rose just 0.1%. The report helped lift stocks and pull long-term Treasury yields lower. Markets welcomed the move. But it left a harder question: was hiring pausing, or losing momentum?
The Bureau of Labor Statistics said nonfarm payrolls grew by 29,000, far below the 90,000 consensus forecast reported by Reuters. Unemployment was 4.2%, compared with the 4.1% forecast. The September employment report also showed average monthly job gains of 45,000 over the preceding 12 months. Revisions cut July and August payroll growth by a combined 60,000 jobs. Average hourly earnings rose 0.1% in September, below Wall Street's expected 0.3% gain.
The BLS said average monthly job growth over the 12 months preceding September was 45,000.
Stocks welcomed lower yields
At 10:22 a.m. ET, the Dow Jones Industrial Average was up 0.58%, or more than 300 points. The S&P 500 had gained about 1.05%, while the Nasdaq Composite was up roughly 1.7%. These were intraday moves, not closing results. In its immediate reaction report, Reuters' market report said S&P 500 and Nasdaq futures had risen 0.9% and 1.3%, respectively.
Bond yields turned lower after their recent climb. At 10:22 a.m. ET, the 10-year U.S. Treasury yield was reported at 5.195%, down 0.039%. The report described the change as a percentage and did not specify it in percentage points. Reuters also reported that after the jobs release, the 10-year yield fell to 5.182% and the two-year yield to 4.725%. Traders reassessed the outlook for the Fed's October decision.
The 10-year Treasury yield had reached 5.34% the previous day, a 24-year high, and had climbed more than 80 basis points during the third quarter. That sharp run-up helps explain why a softer jobs report and falling yields offered relief to stocks.
Investors often use the 10-year Treasury yield as a risk-free rate when they estimate the present value of future corporate cash flows. A higher discount rate lowers the present value assigned to those future dollars, all else equal. That can weigh on stock valuations. Falling yields can ease the pressure, but they do not erase the risks behind the move or guarantee more gains for equities.
Why bond yields matter
Long-term yields have risen this year amid concerns about inflation expectations and U.S. debt. Available reporting does not point to a single cause. August's Personal Consumption Expenditures price index, the Federal Reserve's preferred inflation gauge, came in below expectations. Yields kept climbing. Bond prices and yields respond to market expectations and several economic forces, not one data release.
For investors, the jobs report offered some relief from recent rate pressure. One weak employment reading does not prove that lower yields will last. Inflation data later this month could shift market expectations again. The employment figures may also be revised.
A wider market tension also came up in earlier market analysis: Treasury yields can affect stock valuations even when expectations for company earnings move in another direction. One day's rally does not show that the forces shaping either market have disappeared.
Fed expectations shift
Employment is one part of the Federal Reserve's dual mandate. Stable prices are the other. A cooling labor market could affect the rate outlook, but September's report alone does not show what policymakers will do. Jerry Templeman, a vice president at Mutual of America Capital Management, said in a research note reported by U.S. News & World Report that continued weak jobs data could prompt the Fed to reconsider its tightening stance, especially if the slowdown is faster than officials expected.
The CME Group's FedWatch tool put the chance of the Fed holding rates steady at its upcoming October meeting near 80% as of the report. That was up from 75.6% the previous day and less than 36% a week earlier. These figures reflect market-implied expectations, not a Fed commitment. New employment and inflation data could move them.
Rate expectations affect more than stock prices. Treasury yields shape borrowing costs across the economy, and Fed decisions influence the wider rate environment. Weaker wage growth may ease concern that labor-market pressure is feeding inflation, but it does not settle the inflation outlook. A cooler labor market can support a rate hold. A fresh inflation surprise could complicate that case.
September's data gave a stock market strained by rising long-term yields some near-term relief. They do not deliver a verdict on the economy or the Fed's next move. The rally makes sense: lower yields can support stock valuations, and the report raised expectations of a rate hold. Still, that repricing is not proof of a lasting trend. The next inflation release and later jobs data will test whether yields keep easing.
