Stocks close higher after modest job gains keep Fed rate cut hopes alive

U.S. stocks closed higher Friday after the Labor Department’s monthly employment report calmed fears of a recession but provided enough evidence of a slowing economy to maintain market expectations for another Federal Reserve interest rate cut in late October.

On Thursday, the Dow closed up 122.42 points, or 0.47%, at 26,201.04 while the S&P 500 index rose 23.02 points, or 0.8% to 2,910.63, and the Nasdaq Composite Index rose 87.02 points to 7,872.26, a gain of 1.12%. “This is the classic definition of a ‘Goldilocks’ report,” Michael Arone, chief investment strategist at State Street Global Advisors told MarketWatch. “The rate of job growth is slowing, but the labor market continues to be a strength of the U.S. economy.”

Investors are placing a slightly lower chance that the Fed will cut interest rates at its next meeting ending Oct. 30, with the Fed-funds futures markets pricing an 80.7% chance of a cut later this month, down from about 90% before the report was released. The market is still placing a more than 91% chance of a cut by the end of 2019, however.

“While we believe our strategy and tools have been and remain effective, the U.S. economy, like other advanced economies around the world, is facing some longer-term challenges—from low growth, low inflation, and low interest rates,” Powell said in a Washington D.C. speech Friday afternoon after the jobs data was released, adding the Fed is “examining strategies” that will help it achieve its inflation goal of 2%.

Costco Wholesale Corp. COST, +0.92% reported fiscal fourth-quarter earnings after the close Thursday, with earnings and revenue falling short of Wall Street estimates, though same-store sales growth of 5.1% matched expectations.

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