Investors Got Good News This Week. There’s More Room for Stocks to Rally.

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A Fed on pause, jobs growth slowing but not collapsing, and lower bond yields are a recipe for stock gains.

Investors got several doses of positive news this past week, in the form of a Federal Reserve on pause in raising interest rates, jobs growth in the Goldilocks zone, and less U.S. Treasury bond issuance than feared.

That doesn’t appear to be changing just yet. Both stocks and bonds have surged this week, bouncing back from sharp declines seen since the late summer. Then on Friday, the October employment report came in at a not-too-hot, not-too-cold level. The U.S. economy added 150,000 nonfarm jobs last month—a pronounced slowdown from September’s torrid pace of hiring, but nothing suggesting that a recession is near.

Bond prices have rallied too, pushing down their yields, following the Treasury issuance announcement and as traders have priced in looser Fed policy next year. Lower bond yields are a positive for stock valuations, just as recent declines in share prices have made many companies appear much more attractively valued.

 

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