MANHATTAN (CN) — Dovish comments by the Federal Reserve this week, as well as jobs numbers that failed to meet expectations, saved investors from another losing week in equities.
Early in the week, bears wreaked havoc on Wall Street, with the Dow Jones Industrial Average losing 571 points, and the S&P 500 and Nasdaq seeing similar drops. By the closing bell on Friday, however, investors had dug themselves out that hole, with the Dow gaining 436 points for the week, while the S&P 500 increased 28 points and the Nasdaq netted 229 points.
The first lifeline for markets came on Wednesday, when the Federal Open Market Committee unanimously decided once again to keep interest rates at the 5.25% to 5.5% range.
The Fed also stated it would begin tapering its purchases of Treasuries by $25 billion per month starting in June, keeping the markets somewhat awash in cash. It would keep the redemption cap on mortgage-backed securities at $35 billion per month.
The central bank noted in its accompanying statement, however, that progress toward its 2% inflation objective before the Fed begins cutting rates had stalled.
“The Fed is still in a ‘wait-and-see’ mode,” said Jeffrey Roach, chief economist at LPL Financial. “Investors have to do the same thing as policy makers, which is wait until we see confirmation that inflation is moving toward the Fed’s target. For now, we don’t have a clear picture.”
Some saw Fed Chair Jerome Powell trying to calm markets. “Not only did Powell choose not to give a hawkish press conference, he took great pains to be dovish,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance.
“He explicitly said he believes their next move would be a cut — even if it will take longer to get to that cut than they believed a short time ago — and set the bar extremely high for rate hikes,” Zaccarelli said.
During the press conference after the Fed’s announcement, Powell told reporters that he is more focused on the employment side of the Fed’s goals. On that front, things look positive for Wall Street, at least.
On Friday, the Bureau of Labor Statistics’ monthly jobs report helped investors a bit by showing a cooling labor market, which bolsters the idea that the Federal Reserve will cut rates at some point later this year.
“It’s soft across the board, which is overall positive for markets,” said Jamie Cox, managing partner for Harris Financial Group. “Wage growth being soft is going to help take the concerns about the massive resurgence of inflation off the table.”
The federal employment report came on the heels of a slightly better employment report by payroll company ADP showing a gain of 192,000 private sector jobs last month. It also comes as unemployment claims remain fairly low, although Bureau of Labor Statistics data show the overall unemployment rate increased to 3.9%.
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