Stocks and bond yields opened the session higher after the Labor Department reported that the U.S. economy added 216,000 jobs in December, larger than November’s gain of 173,000, and better than forecasters were expecting. As the Wall Street Journal's chief economics commentator Greg Ip put it, the reading looked like a "Goldilocks number" - neither too hot nor too cold to spook the markets, especially when paired with downward revisions to the October and November jobs data.
Yet just half an hour into trading, the Institute for Supply Management released its services-activity index, showing a fall to 50.6 in December from 52.7 in November and below economists’ estimates for a 52.5 reading. In response, the yield on 10-year Treasury notes briefly fell below Thursday's closing level. Stocks were also in negative territory for part of the afternoon.
Yet optimism gradually returned over the course of the day. 10-year Treasury yield settled up 0.051 percentage point, to 4.041%. The Dow Jones Industrial Average closed up 26 points, or 0.07%, while the S&P 500 rose 0.18%.
Perhaps most telling has been the movement in interest-rate expectations this week. According to the CME Group, traders are now pricing in a 62% chance of a 25 basis-point rate cut at the Federal Reserve's March meeting, down from 73% a week ago.
The picture that emerges is of a relaxed Federal Reserve, likely to cut rates this year as inflation keeps abating, but not doing so in a hurried or dramatic manner as it might in response to an economic downturn. Goldilocks herself would approve.
Here’s what else Heard on the Street was watching:
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