US STOCKS have hit their highest levels since October after a better-than-expected employment report yesterday buttressed hopes that the recession was nearing an end.
The US economy lost 247,000 jobs in July, according to the non-farms payroll report, below a median estimate of 320,000 jobs made by economists. The unemployment rate slipped from 9.5 per cent in June to 9.4 per cent.
The SP 500 rose as much as 1.9 per cent in afternoon trade, bringing its gains from its March low to about 50 per cent. Treasury yields also rose, indicating that investors were growing more confident of a recovery.
“No longer should we have to discuss when the recession will end, but rather, what the recovery will look like,” said Joseph Brusuelas, director of Moody’s economy. com.
The jobs report was a blow to Wall Street bears who have been arguing that rising unemployment would eventually overwhelm good feeling caused by positive earnings reports from blue-chip companies.
Jack Ablin, chief investment officer at Harris Private Bank, said: “The bears have been hanging their hat on the poor employment picture, but job losses are running at a third of what we saw earlier this year.”
Jim Paulsen, chief investment strategist at Wells Capital Management, said the rise of the SP 500 above the 1,010 level was particularly significant for technical analysts and potentially signalled a march to the 1,100 level.
The slowing pace of job losses was evident across broad swathes of the economy. The service sector lost fewer jobs in July than it had for 10 of the past 11 months, while the goods-producing sector lost fewer jobs in July than in any month since September. Payrolls increased in the car sector in July.
The optimism in the markets was tempered by the fact that the fall in the unemployment rate, which is based on a separate survey of households, also reflected a reduction of 422,000 people seeking employment.
Another concern for investors was that trading volumes have been low during the rally. Analysts say this could mean traders are bidding up stocks as they close out short positions – a potentially negative indicator for the longer term.
US treasury yields were higher, while corporate bonds rallied.
